Google Stock Poised to Benefit from AI-Fueled Growth and TPU Deployments

Google's (GOOGL) stock has been range-bound for some time, but recent business and regulatory developments suggest it is still a solid buy. The company's Google Cloud arm is experiencing accelerating growth, with significant AI-driven revenue visibility due to its $514 billion backlog. Over half of this backlog is expected to convert within 24 months.

One key area of growth for Alphabet is the commercial adoption of its TPUs (Tensor Processing Units). While currently a relatively small contributor to revenue, these deployments could create a major incremental stream from 2027 onwards. This would not only generate new revenue but also improve the company's return on AI infrastructure spending.

However, there are some risks to consider. The EU Digital Markets Act may impact European search engagement and ad conversion, while fines and follow-on litigation are also potential concerns. Nevertheless, Google Cloud's 35.6% EBIT margins and incremental YoY EBIT margins above 50% indicate scope for further operating leverage as AI infrastructure adoption scales.

GOOGL trades at a premium valuation risk due to its elevated price-to-earnings ratio compared to peers. However, technical charts suggest a bullish stance is warranted.