AI business is strong, and Google’s parent company Alphabet has posted its best quarterly performance in twenty years.

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Driven by strong momentum in artificial intelligence, Alphabet Inc.'s stock price posted its best quarterly performance in twenty years.

Alphabet's Class A shares surged 38% in the third quarter, marking the biggest quarterly gain since 2005. This performance brings its year-to-date increase to over 28%, ranking second among the highly watched “Magnificent Seven” tech stocks, just behind chipmaker Nvidia.

The key catalysts behind this rally were the strong growth of its AI product Gemini and a better-than-expected resolution to an antitrust case. Earlier this month, Gemini briefly topped the US App Store rankings at Apple.

In addition, Wallstreetcn reported that on September 2, US federal judge Amit P. Mehta ruled that Google does not need to sell Chrome in its antitrust case, and more importantly, is allowed to continue its search engine partnership with Apple. This secures Google’s default search engine status on Apple devices.

This strong rebound from Google signals a significant return of investor confidence. Back in April, the stock had fallen as much as 24% for the year.

AI Counterattack: From "Loser" to "Winner"

As investor confidence in Alphabet’s AI strategy grows, the company has successfully reversed the market narrative. Previously, there were widespread concerns that generative AI tools like ChatGPT might erode its traditional search business.

Google is fighting back with a series of proactive initiatives. The company has deeply integrated AI into its search function via its "AI model," is aggressively promoting Gemini, and exploring multimodal search through tools like the Nano Banana image editor. These moves have effectively eased market concerns.

Mizuho analyst Lloyd Walmsley wrote in a report released this Tuesday, “We believe the market pendulum will continue to swing from ‘generative AI loser’ to ‘winner,’ though we acknowledge the debate is far from settled.”

Analyst Optimism: Advertising and Cloud Are Dual AI Monetization Engines

Wall Street is also expressing confidence in Alphabet’s outlook. Mizuho analyst Lloyd Walmsley has initiated coverage on Alphabet stock, giving it an “outperform” rating and setting a target price of $295. He believes the company’s advertising and cloud revenue streams are showing robust growth.

Walmsley points out that with its Performance Max advertising product, massive consumer data, and unrivaled distribution channels, Google is in "the best position" to monetize AI via its advertising business. In addition, YouTube also carries considerable monetization potential, with AI expected to improve user experience and ad relevance.

Beyond advertising, Google Cloud will also benefit significantly from the rapidly growing AI workloads, especially as inference demand continues to grow in the coming years.

Technological Moat: Self-Developed Chips and Data Centers

Analysts believe Google’s technological accumulation and infrastructure in AI are key advantages.

Lloyd Walmsley highlights Google’s industry-leading data center infrastructure in his report. Notably, Google’s data centers deploy both Nvidia chips and its own Tensor Processing Units (TPUs). This hybrid hardware setup gives Google great flexibility and competitive advantages in handling large-scale AI computing tasks.

These infrastructure advantages, especially as inference demand is set to rise sharply, lay a solid foundation for long-term growth of Google’s cloud business.

The Long Race Winner Remains Uncertain

Despite Alphabet’s shine this quarter, analysts caution that the long-term competitive landscape in AI remains far from settled.

Lloyd Walmsley states that the ultimate winner in the AI race will not be decided this quarter, or even the next.

However, for Google, market sentiment has clearly shifted recently. After turbulence at the start of the year, investors now view the company as moving in the right direction.

Risk Warning and DisclaimerThe market involves risk; invest carefully. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are appropriate to their specific circumstances. Investment based on this article is at your own risk. ```