Following a long-awaited antitrust ruling that eliminated key risks that had weighed on Alphabet's stock for months, the company's shares have suddenly broken free and are performing strongly.

The ruling issued by a U.S. district court judge on Tuesday allowed Alphabet to avoid the harshest penalties sought by regulators, including the forced sale of its Chrome browser. This positive development has driven Alphabet's stock up nearly 10% over the past two days, bringing its market capitalization within striking distance of the $3 trillion mark. With this case now settled, investors are refocusing their attention on Alphabet's upside potential—despite the recent rally, the stock remains one of the lowest-valued names among the "Magnificent Seven" tech giants.

"This ruling clears the way for Alphabet to pursue additional growth opportunities," said Neville Javeri, senior portfolio manager at Allspring Global Investments, regarding the decision. He believes the ruling "preserves growth opportunities that Alphabet could have otherwise lost," making the stock an "excellent investment value."

Previously, Alphabet's stock began a strong upward trajectory following the company's second-quarter earnings report, which showed revenue growth driven by demand for artificial intelligence (AI) products. Meanwhile, its AI offerings continue to boost investor confidence, convincing the market that Alphabet has the capability to withstand competition from rivals like OpenAI.

Since releasing earnings on July 23, Alphabet's stock has gained more than 20%, propelling the company into the top third of best-performing constituents in the Nasdaq 100 Index this year. Prior to this period, the stock had underperformed for months due to market concerns about antitrust risks and fears that emerging AI companies could erode its Google Search business, which contributes over half of Alphabet's revenue. As recently as June this year, Alphabet's stock was down more than 10% while the Nasdaq 100 Index was in positive territory during the same period.

While controversies surrounding AI are unlikely to subside in the near term, Wall Street's confidence in Alphabet's ability to defend its market position is growing stronger. Earlier this year, Alphabet launched AI features that received widespread acclaim; its latest Pixel phones, equipped with extensive AI capabilities, have also gained market recognition. Sales data from Alphabet and Samsung Electronics show that consumers are willing to switch to devices running Google's Android operating system.

Approaching Market Cap Milestone

"Given the new AI features in Google Search and the rapid expansion of Alphabet's Gemini app, we expect Google to maintain its leading position in traditional search," TD Cowen analyst John Blackledge wrote in a report to clients on Wednesday.

Alphabet currently has a market capitalization of $2.81 trillion, approximately 7% away from the $3 trillion milestone. To date, only Apple Inc., Microsoft Corp., and Nvidia Corp. have reached this market cap level.

Closing this gap may not be difficult. Alphabet currently trades at a forward price-to-earnings ratio of about 21 times, below the Nasdaq 100 Index's average of 26 times; additionally, the company's revenue is expected to grow 14% this year, outpacing this benchmark index.

"Alphabet remains attractive because it owns multiple high-quality businesses that are all maintaining rapid growth," said Liam McGarrity, U.S. investment analyst at Harris Oakmark, where Alphabet is the largest holding.

However, despite improved market sentiment, Alphabet may struggle to maintain its current momentum in the short term. The stock's 14-day Relative Strength Index (RSI) has risen above 83, the highest level since 2017 and well above the 70 threshold that technical traders consider "overbought." Furthermore, the stock's current price is now in line with analysts' average target price, suggesting Wall Street sees limited upside from here.

"It's understandable that investors are relieved by the dissipation of near-term risks, but the long-term concern of 'competitive risks to the search business' will continue to limit the stock's valuation multiple expansion," Rosenblatt Securities analyst Barton Crockett wrote in a report to clients on Wednesday, maintaining a "neutral" rating on the stock.

For McGarrity, the core investment thesis for Alphabet lies in the belief that the company can maintain its competitive edge over rivals in the AI space and sustain its growth trajectory.

"Despite Alphabet possessing industry-leading AI technology and having enormous potential in businesses like Google Cloud and Waymo (autonomous driving), its valuation remains below market average, demonstrating that the stock currently trades at a significant valuation discount," he said.