AI competition threatens search control
The rise of CHATGPT and other AI platforms has created unprecedented challenges for Google's search business. These new competitors offer conversational interfaces that provide intelligent answers to complex questions, potentially reducing users' reliance on traditional search engines and advertising revenues they generate.
Alphabet's forward 12-month price and return rate compressed from an average of 22.6x to 18.3x over five years, reflecting investors' concerns about the company's ability to maintain control of search.
To combat these threats, Alphabet has launched its latest generation AI model, the Gemini 2.5 Pro. Lmarena ranked it as a leader in AI peers, including Openai's model and Claude Sonnet 4 in areas such as creative writing, coding, and visual processing.
The company is driving AI adoption by leveraging a vast user base across its products, including Android, with 500 million users currently using Gemini models. The AI overview, integrated into Google Search, shows the company's ability to reach 1.5 billion users each month and enhance existing products with AI capabilities.
Investors will watch carefully to see if Alphabet can continue to expand the user base of the Genai model without cannibalizing the traditional search base. This delicate balance between innovation and protecting existing revenue streams is essential to the company's long-term success.
Cloud business drives growth ambitions
Google Cloud represents Alphabet's biggest growth opportunity, with the division expected to expand 26% year-on-year in the second quarter. The cloud business has gained market share from its Amazon and Microsoft competitors, improving from 10% in the first quarter 2023 to 12% in the first quarter 2025.
Innovation in AI Enterprise Solutions is critical to the continued success of Google Cloud. The company's ability to integrate cloud services with other Google products, such as Workspace, offers a competitive advantage that rivals find difficult to replicate.
The proposed $32 billion acquisition of WIZ will enhance Google Cloud's security capabilities and address key considerations for companies choosing a cloud provider. As businesses move sensitive data and applications to cloud environments, enhanced security features are becoming increasingly important.
Investors will monitor the latest management updates on WIZ acquisitions and the company's strategy to gain more market share. The cloud market remains extremely competitive, with great opportunities for businesses that can effectively combine AI capabilities with robust infrastructure.
Antitrust challenges create regulatory risks
The alphabet faces important antitrust challenges across multiple jurisdictions that could fundamentally affect its business model. In the US, the company defends allegations that it illegally monopolizes both the search engine and online advertising markets.
A court ruling from an ongoing remedy could have significant consequences for Google's operations. One of the proposed remedies involves enforcing Google to sell its Chrome browser. This has a major impact on the company's search revenue and user data collection capabilities.
In Europe, the EU's general court has issued a fine of 4.1 billion euros, leveraging the advantages of Android to provide unfair advantages to Google's apps. The company continues to sue, but the possibility of substantial financial penalties remains high.
The outcome of these legal procedures will be closely monitored by the market in assessing our long-term outlook.
Analyst Outlook and Price Targets
Wall Street sentiment remains largely positive despite the challenges, 43 of the 55 analysts who maintain a “buy” or “strong buy” rating according to LSEG data. However, reflecting the increased uncertainty, the average target price has fallen from around $215 in March to $202.05. Current analyst consensus suggests a potential rise of 11% from recent trading levels.
Tipranks data shows a neutral smart score, with positive analyst ratings balanced with concerns about hedge fund positioning and technical momentum.
