Alphabet Can’t Shake Off AI Concerns Even With Low Multiple

Ryan Vlastelica

Thu, Apr 10, 2025, 6:33 AM 6 min read

(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.