Alphabet’s Valuation Hinges on Ambitious Waymo and Cloud Expansion

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Investors are closely evaluating Alphabet Inc.'s dual-track strategy of aggressive investment and high-growth segments. The parent company of Google is making a substantially larger bet on autonomous driving than previously understood, with its Waymo unit at the center of a major funding initiative. Concurrently, robust projections for its cloud division provide counterbalancing momentum. The interplay between these costly technological frontiers and their growth potential is a primary driver of the stock's current valuation.

Alphabet's core business continues to reinforce its growth credentials. On December 16, BMO Capital Markets reaffirmed its "Outperform" rating on the stock and slightly raised its price target from $340 to $343. This adjustment was prompted by positive indicators from the cloud segment.

Analysts project that Google Cloud revenue will expand by 39% in the fourth quarter of 2025, potentially accelerating to a 40% growth rate in Q1 2026. Sustaining this pace would cement Alphabet's position among the cloud market leaders and help justify its significant capital expenditures.

However, market opinion is not unanimous. Another analysis published on the same day, December 16, presented a discounted cash flow (DCF)-based price target of $258, accompanied by a "Hold" rating. The rationale cited concerns over very high investment outlays, which could pressure free cash flow and valuation multiples in the near term.

Massive Infrastructure and AI Investment Outlay

The current debate centers on Alphabet's balance between growth spending and financial discipline. The company has increased its capital expenditure forecast for 2025 to a range of $91 to $93 billion. A substantial portion of this budget is allocated to data centers and AI infrastructure, necessary to power and expand the Gemini models and cloud services.

Despite these substantial outflows, the company's operational financial buffer remains comfortable. Alphabet generated over $112 billion in operating cash flow during the first nine months of 2025. Cash, cash equivalents, and marketable securities stood at $98.5 billion at the close of the third quarter. This liquidity provides ample room to fund aggressive plans, including the expansion of Waymo, without fundamentally straining the balance sheet.

Waymo Eyes a Monumental Funding Round and Valuation Leap

Recent reports from December 17, 2025, indicate that Waymo is in negotiations for a new funding round exceeding $15 billion. The targeted valuation for the autonomous vehicle subsidiary is approximately $100 to $110 billion. This represents a dramatic increase from its October 2024 valuation of around $45 billion, set during a $5.6 billion capital raise—implying a more than doubling of its worth in just over a year.

Alphabet itself is expected to lead this mega-round. The fresh capital is intended primarily to fund the expansion of its robotaxi business into new markets starting in 2026, including London. Waymo already operates fully driverless commercial services in major U.S. cities such as San Francisco, Phoenix, and Los Angeles, having surpassed 14 million total rides in 2025.

Key metrics defining the current Waymo narrative:
- Planned Capital Raise: Over $15 billion
- Target Valuation: $100–110 billion
- Valuation Increase: More than double since October 2024 ($45 billion)
- Revenue Base: Annualized run-rate exceeding $350 million
- Fleet Size: Approximately 2,500 vehicles

For investors employing a sum-of-the-parts analysis, Waymo is becoming an increasingly critical component of Alphabet's overall value. The subsidiary's prospective valuation hinges on its ability to scale from a current weekly rate of 450,000 paid rides into a profitable global business by 2026, with execution being the ultimate test.

Market Position and Stock Performance Context

Alphabet remains a market heavyweight. With a market capitalization of roughly $3.7 trillion, it is a central member of the "Magnificent Seven" cohort, which collectively accounts for about 26% of S&P 500 earnings.

The equity, priced at €260.90, is trading near the upper end of its 12-month range and approximately 6.7% below its 52-week high of €279.70. It has recorded a 12-month gain of just over 40%, with a year-to-date advance of around 41%. The shares are trading decisively above their 200-day moving average, reflecting a sustained positive trend.

Two key themes will likely dominate the narrative in coming quarters: First, whether Google Cloud can meet or exceed its projected revenue growth rate of nearly 40%. Second, whether Waymo can validate the ambition implied by its targeted $100 billion valuation, evolving from a high-growth pilot project into a contributor to reliable earnings. These factors will significantly influence the valuation premium the market is willing to assign to Alphabet.