Alphabet’s AI Showcase: A Wall Street Win

Alphabet’s stock has surged 140% over the past year, showcasing a cloud business that is outperforming both Amazon and Microsoft. This remarkable turnaround follows a period, just 18 months ago, where Google’s parent company appeared to have meticulously prepared for the artificial intelligence revolution, only to see OpenAI emerge as the dominant market definer.

Now, Wall Street is reassessing Alphabet, viewing it as one of the select few companies strategically positioned to capitalize on every facet of the generative AI boom.

Google I/O, commencing Tuesday, has traditionally served as the company’s premier platform for unveiling its developer-focused strategies. This year, the stakes are significantly elevated. While the market has already acknowledged Alphabet’s AI resurgence, investors are keenly awaiting concrete product roadmaps across critical domains such as search, cloud computing, Android, chip development, and enterprise software.

“Alphabet is arguably the most strategically positioned company to monetize AI at scale, given its control over nearly every layer of the technology stack,” stated Lo Toney, founding managing partner of Plexo Capital and an early investor in Anthropic. “We’ve rarely encountered a company with such comprehensive vertical integration, enabling them to fully support AI development and deployment.”

Gene Munster, managing partner at Deepwater Asset Management, elaborated on the advantages of owning the entire stack, highlighting not just scalability but also unparalleled speed in innovation. “The benefit of controlling the full stack is evident in the velocity of innovation,” Munster remarked. “Developing on custom silicon, for instance, grants a significant speed advantage. Access to power allows for expedited data center deployments, a crucial factor in today’s fast-paced environment.”

Here are seven key areas investors will be closely scrutinizing at Google I/O:

## What’s Next for Gemini

The most anticipated announcement will be the unveiling of a next-generation Gemini model. Pre-event reports hint at a potential Gemini 4 debut, though analysts remain cautiously optimistic. Citi observed that with Gemini 3.1 Pro released in February, Google has maintained a roughly three-to-four-month launch cadence, making a Gemini 3.2 or 3.5 update more probable than a full generational leap.

This distinction is crucial. A significant upgrade would position Google more competitively against OpenAI and Anthropic. Mizuho analysts noted that a Gemini 4 announcement “would propel Google back to the forefront of cutting-edge AI,” whereas another iteration of the generation 3 series might be perceived as a catch-up effort.

Beyond the core model, broader advancements within the Gemini ecosystem will be critical. Mizuho analysts will be particularly interested in the progress of Project Astra, Google’s ambitious universal AI assistant, alongside enhancements to Gemini Live capabilities, screen sharing, video comprehension, and native tool integration across Search, Gmail, Calendar, and Maps. Updates to Gemma, Google’s open-source model family, and Gemini Robotics are also expected.

The usage metrics leading into the event already signal strong momentum. Paid Gemini Enterprise monthly active users surged by 40% in the first quarter compared to the previous one. Data from Citi indicates that the Gemini app saw a 127% year-over-year increase in U.S. monthly active users in April. Token consumption reached an impressive 16 billion per minute at Google Cloud Next.

## AI Agents

The overarching theme likely to dominate the Google I/O agenda is the development and deployment of AI agents. The event’s schedule features sessions dedicated to agentic coding workflows, multimodal tools, media generation, robotics, and AI agents. The strategic intent is to elevate Gemini beyond a mere chatbot, positioning it as an integral operating layer across Google’s product suite, capable of contextual understanding and proactive action.

“The market for the office copilot is up for grabs,” observed Toney. “If AI agents and their orchestration become the dominant market – encompassing inference infrastructure, multimodal workflows, and enterprise search – this represents a significant opportunity for Google to drive Alphabet’s future growth.”

Agentic coding is a key component of Gemini’s strategy to counter offerings like Anthropic’s Claude Code and OpenAI’s Codex. This category has emerged as one of the most compelling demonstrations of AI’s commercial value, particularly within the enterprise software sector.

## Agentic Shopping

The e-commerce landscape presents perhaps the most substantial opportunity for Google. The company already possesses integrated search, shopping, autofill, and payment functionalities. The ambition now is to leverage Gemini to seamlessly connect these components into an agentic checkout experience.

Google has been actively expanding its Universal Commerce Protocol, recently onboarding partners such as Meta, Microsoft, Stripe, Klarna, and Affirm. Google I/O is expected to provide further insights into how this infrastructure can facilitate end-to-end agentic checkout, where Gemini not only responds to shopping inquiries but also executes transactions.

Sameer Samat, president of Android Ecosystem at Google, illustrated this with an example: asking Gemini to plan a barbecue, create a menu, initiate an Instacart order, add items to a Safeway cart, and then confirm task completion. “When you multiply that across multiple tasks daily and weekly, it translates into significant time savings,” Samat noted. “These are the kinds of features that I believe resonate most strongly with users and offer tangible benefits.”

Toney believes Google’s multimodal capabilities provide a structural advantage as these workflows become increasingly sophisticated. “Enterprise workflows are increasingly incorporating elements like video, voice, images, and code,” he explained. “Google possesses a unique strength in multimodal systems, stemming from its extensive experience with some of the largest applications that handle these formats – YouTube, Android, Maps, Search, and DeepMind – as well as its proprietary TPUs.”

For investors, the push towards agentic commerce carries implications beyond Alphabet. Mizuho has flagged that further agentic product development from Google could potentially impact marketplaces such as Booking Holdings, Expedia, DoorDash, Zillow, and Instacart, suggesting that anticipation of such shifts may already be reflected in recent weakness observed in these stocks.

## AI Mode Monetization

A crucial question revolves around how Google will monetize these advancements. According to Citi, AI-enabled campaigns now constitute over 30% of search advertising expenditure. AI Max, which transitioned from beta in April and is slated to replace Dynamic Search Ads by September, is demonstrating early success, including enhanced conversion rates with its comprehensive feature set.

Citi further suggests that AI Mode could facilitate the monetization of longer, more intricate queries that historically proved challenging to convert into ad revenue. However, Mizuho highlights a potential trade-off: AI Mode searches result in significantly fewer outbound clicks. The firm estimates that 93% of these searches conclude without an external click, and organic click-through rates see a 15% decline on AI Overview queries.

Consequently, monetization strategies will be a paramount focus at I/O. Munster indicated he will be looking for new ad products within AI Mode, Google’s framing of agentic commerce, and any insights into more personalized AI experiences.

## Google Cloud’s Ascendancy

For investors, however, the most impactful announcements at I/O may originate from the cloud and infrastructure segments. Google Cloud has solidified its position as a formidable pillar for Alphabet, achieving 63% year-over-year growth in the first quarter, surpassing both Azure and AWS. The cloud backlog reached an impressive $462 billion, representing a roughly 90% quarter-over-quarter increase, with approximately half of this expected to be recognized over the next 24 months. Generative AI product revenue experienced an extraordinary growth of nearly 800% year-over-year.

CEO Sundar Pichai has attributed this growth to several key drivers, including accelerated new customer acquisition, larger client commitments, and deeper engagement with existing clients. During the company’s first-quarter earnings call, Pichai highlighted that the number of billion-dollar-plus deals signed in 2025 has already surpassed the total from the previous three years combined, while existing customers are exceeding their initial commitments by over 30%.

## AI Chip Strategy

A new strategic variable is the external sales of Google’s Tensor Processing Units (TPUs). In the first quarter, Alphabet disclosed its intention to begin supplying its custom AI chips to external clients in the latter half of 2026, with broader expansion planned for 2027. This represents a potentially substantial new revenue stream, though investors are still seeking clarity on its modeling.

Mizuho analysts are keen to understand the specifics of external TPU sales, including whether they are booked as gross sales or royalty revenue, the projected profit margins, and how these deals are accounted for in the backlog.

Toney regards TPUs as one of the most underappreciated aspects of Alphabet’s investment thesis, arguing that the company’s in-house chip development has enabled the creation of a highly integrated AI infrastructure that not only supports Gemini and Cloud but also underpins services like YouTube, Android, and the broader ecosystem.

Munster estimates the global AI chip market is currently valued at approximately $500 billion annually, indicating that even modest market share gains for Alphabet could translate into significant financial impact.

## The Anthropic Partnership

No relationship will command more scrutiny heading into Google I/O than Alphabet’s strategic ties with Anthropic. Alphabet holds a substantial equity stake in the AI startup, and the recently reported $200 billion cloud commitment, if accurate, could represent a significant portion of Google’s contracted future cloud revenue.

Furthermore, Google has committed up to $40 billion in total investment, creating a synergistic loop where capital flows into Anthropic, subsequently returning to Google through cloud and TPU expenditures. This dynamic raises a pertinent concentration question, a concern that investors have observed in other cloud providers. Oracle’s stock experienced a surge following reports of a substantial backlog increase primarily linked to OpenAI, only to face a sell-off as investor concerns about customer concentration grew. Microsoft is navigating a similar debate concerning its relationship with OpenAI.

Toney views the Google-Anthropic relationship as more of a strategic hedge than a vulnerability. He posits that even if enterprises opt for Claude over Gemini, Google can still benefit significantly from the underlying infrastructure demand. “If enterprises favor Claude, Google still emerges as a winner in the infrastructure space because all of that activity must be hosted somewhere,” he stated. “Google’s advantage in TPUs remains a key differentiator.”