(Bloomberg) — Persistent concerns that Alphabet Inc. has fallen behind in the artificial intelligence supremacy race has weighed on the stock this year, and not even the cheapest earnings multiple in about two years, or limited risk from tariffs, has been enough to entice investors.
Widely seen as one of the major players in AI, Google’s parent company nevertheless continues to be dogged by the perception that it could lose market share to rivals like ChatGPT. Though it retains a dominant share of Internet search, any loss could put additional pressure on the stock, especially as the company spends aggressively on AI.
“It is hard when you have such high market share, because you have nowhere to go but down,” said Kevin Walkush, a portfolio manager at Jensen Investment Management. “We don’t think it will lose its dominance in search, and we think the market is overplaying this concern, but it is still being perceived as an existential risk.”
Despite a 9.7% climb Wednesday as markets surged on President Donald Trump’s tariff pause, the company’s shares have dropped almost 18% this year, underperforming other AI stocks like Microsoft Corp. and Meta Platforms Inc., as well as the Nasdaq 100 Index. Shares fell 1.3% on Thursday.
Reassuring investors about the prospects for search will be critical for the stock to keep rebounding, while the high cost of building out AI models and infrastructure underscores the need for those investments to translate to improved growth. Alphabet in February announced $75 billion in 2025 capital expenditures, more than had been expected, and it affirmed those plans on Wednesday.
According to the latest Statista data from January, Alphabet has about 89.6% of worldwide market share for search engines. That compares with 92.9% share in January 2023, around the time ChatGPT began to take the tech world by storm.
To Ben Reitzes, an analyst at Melius Research, that modest erosion could be a sign of things to come.
“Search is about to come under siege, but it is yet to be fully reflected in Street estimates,” he wrote in a recent report. “Alphabet’s multiple may stay under pressure as data starts to accumulate.” He said he sees a particular risk that younger users are gravitating toward services like OpenAI’s ChatGPT.
Alphabet’s most recent earnings results showed search advertising revenue that was slightly better than expected. However, the stock sold off as sales in its cloud unit — another business heavily tethered to AI demand — disappointed. The company is expected to get more than 56% of its total revenue from Google Search & Other advertising this year, according to data compiled by Bloomberg. Google Cloud is expected to account for about 14% of revenue.
The stock still has several marks in its favor. Revenue is expected to grow about 16% this year, while net earnings are expected to grow at a double-digit pace each year through 2027, according to data compiled by Bloomberg. Furthermore, despite an uncertain economic backdrop, the consensus estimate for Alphabet’s 2025 revenue has risen over the past month.
The company’s ad-focused business is seen as relatively insulated from tariff risk, especially compared to hardware companies like Apple Inc. While advertising tends to be largely correlated with economic growth, online advertising is seen as more durable than platforms like linear TV.
In addition, the selloff has made Alphabet the cheapest Magnificent Seven company. The stock trades at less than 17 times estimated earnings, near its lowest since early 2023, and well below its long-term average. It also trades at a discount to the S&P 500 Index.
“This represents significant value,” Walkush said. “If the market was appropriately identifying the durability and consistency of its growth and free cash flow generation, the multiple would be quite a bit higher.”
Wall Street remains largely positive. Roughly 80% of the analysts tracked by Bloomberg recommend buying the stock, and shares trade 34% below the average price target.
Beyond Google Search, several of Alphabet’s businesses are seen as underappreciated. Earlier this year, Needham calculated that YouTube would be valued at $666 billion if separately traded, while D.A. Davidson wrote that a company comprised of Alphabet’s DeepMind AI lab and its Tensor Processing Units chips could be worth as much as $700 billion. Alphabet’s AI drug unit recently raised $600 million, and its self-driving unit Waymo was valued at more than $45 billion in October.
“Alphabet remains something of a show-me story when it comes to AI search, but it has all the assets it needs to win, and we expect search to grow overall, so Alphabet will be fine even if it has a smaller share of a larger market,” said Divyaunsh Divatia, research analyst at Janus Henderson Investors.
“We want to see more adoption of Gemini and its other AI products, but think of everything you get with the stock: not only search and cloud, which are growing, but also the biggest media company in the world with YouTube, and Waymo, which is potentially significant. To get all that for cheaper than the S&P 500 is a real value.”
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Earnings Due Thursday
–With assistance from Subrat Patnaik.
(Updates to market open.)
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