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Google CEO Sundar Pichai waves as he arrives to attend the Artificial Intelligence (AI) Action Summit at the Grand Palais in Paris, France, February 11, 2025.
Benoit Tessier | Reuters
Alphabet (GOOGL) heads into its earnings release on Wednesday with substantial expectations to meet.
The tech giant’s stock witnessed a remarkable surge of 38% in the third quarter, marking its strongest quarterly performance in two decades. This momentum has continued into October, with shares climbing another 11% to reach a record high on Monday.
While revenue growth has recently been confined to the low teens, projected at 12% for the upcoming year, investors are adjusting their outlook following the rapid expansion seen prior to the slowdown in 2022. The current optimism is largely fueled by Alphabet’s increasingly competitive position in the rapidly evolving artificial intelligence landscape.
Notably, the primary catalyst for the stock’s performance in the third quarter was more rooted in Google’s perceived lag in AI advancements relative to its dominant standing in the online advertising sector.
Alphabet vs. Nasdaq
Alphabet shares experienced a significant boost in early September following a favorable outcome in its search antitrust case, where the company avoided the most severe penalties. Following the government’s initial victory the previous year, Judge Amit Mehta ruled against forcing Google to divest its Chrome browser but mandated data sharing with competitors.
Judge Mehta highlighted that the emergence of AI services from companies such as OpenAI has introduced substantial new competition in the search market. Reinforcing this point, OpenAI recently introduced ChatGPT Atlas, an AI-driven browser poised to potentially challenge Chrome directly.
While the ruling was initially well-received by investors, Alphabet is now under pressure to demonstrate its strength in the AI domain, which is increasingly driving growth in the tech industry. Google’s cloud division is benefiting from the AI boom as enterprises adopt the technology for large language model processes and expanded workloads. Significant investments are being directed into Gemini, Google’s suite of AI models, products, and services, to further solidify its market position.
KeyBanc Capital Markets analysts recently raised their price target on Alphabet to $300 from $265, anticipating that the third-quarter results will reflect “faster product velocity driving momentum in Search, Cloud, and Waymo,” the company’s autonomous vehicle unit.
The analysts cited the stock’s positive movement as a result of the DOJ Search remedies trial, which was “more favorable than expected,” coupled with increasing signs of AI progress across various business segments.
Alphabet’s earnings report is scheduled for release after the market closes on Wednesday, coinciding with reports from competitors Microsoft and Meta. Apple and Amazon will report the following day.
Wall Street anticipates revenue growth of approximately 13% to $99.89 billion, with earnings per share projected at $2.26, according to LSEG data.
AI Competition: A Double-Edged Sword?
While Alphabet’s AI initiatives generate excitement, some analysts remain cautious regarding its competitive standing.
Bernstein analysts suggested that Judge Mehta’s observations regarding generative AI’s competition with traditional search could signal a potential issue for investors.
“The bite isn’t fatal but it still stings,” the analysts noted, maintaining a neutral rating on Alphabet.
In his detailed assessment, Judge Mehta dedicated a substantial portion of his filing to explaining generative AI and its present market dynamics. He characterized the sector as “highly competitive” and noted the entry of “numerous new market entrants” with “a lot of capital.” The implication is that Google’s historic dominance may be challenged.
According to September data from StatCounter, ChatGPT currently commands approximately 81% of the global AI chatbot market. Perplexity follows at 11%, with Microsoft Copilot at 4.1% and Gemini at 2.8%. This data underscores the competitive pressures Google faces in the chatbot space, despite its overall AI capabilities. However, market share in chatbots is only one dimension of the broader AI landscape. Google is focused on integrating AI across its existing product ecosystem.
Google is aggressively promoting Gemini as a comprehensive AI solution, leveraging its established presence across various markets for broader distribution. The company has recently rolled out Gemini Enterprise, aimed at corporate clients, offering AI agents that can automate specific work tasks. Gemini is also being integrated into Chrome for Mac and Windows users in the U.S. and on mobile devices, enabling functionalities such as web page content summarization, cross-tab management, and enhanced single-tab productivity.
Google CEO Sundar Pichai announced at Salesforce’s Dreamforce conference that Gemini 3, the newest iteration of Google’s AI model, will be released before the end of the year, promising further performance improvements and feature enhancements. The deployment of Gemini 3 is critical for Alphabet to demonstrate continued advancements that can drive monetization and maintain a competitive edge against rapidly developing AI models from OpenAI, Anthropic, and others.
Analysts at Mizuho highlighted in a recent report that “competitive risks from OpenAI across the internet landscape, particularly at Google, have been topic #1” in numerous conversations with investors.
However, the firm also anticipates that “competitive fears likely to recede as we refocus on fundamentals with earnings,” suggesting a short term boost with the imminent rollout of Gemini 3. Still, the long-term implications of increased AI-driven competition on core Google businesses like Search is one of the key questions facing investors.
Despite the generally positive response to the remedies resolution, Alphabet is required to make certain concessions, including granting “qualified competitors” access to specific search and user data. The exact criteria for determining these competitors will be established by a technical oversight committee at a later date.
Services such as DuckDuckGo and Microsoft Bing may potentially benefit, gaining improved access to some of Google’s search index data under specific licensing frameworks.
Judge Mehta stated that the data-sharing remedies “can help to close the sizeable advantage Google has in answering long-tail queries, thereby improving product quality and attractiveness to new users.”
Analysts at Baird expect a “modest” impact on Google, noting that the company is not obligated to share its data with generative AI competitors like Perplexity and OpenAI, indicating that this restriction would have been “more problematic.”
Alphabet plans to appeal the ruling, and previously issued a statement saying “We have concerns about how these requirements will impact our users and their privacy, and we’re reviewing the decision closely,” the company wrote”
Abiel Garcia, a former deputy attorney general, suggests that the ruling may not significantly alter Google’s operations, saying that “Maybe some of the data will help competitors’ products at the periphery, but I don’t think this is going to really shift anything,” according to Garcia.
