Alphabet's search dominance is at risk from its own AI success, according to Bloomberg's Ryan Vlastelica. Last week's earnings report showed search revenue weaker than expected, and the company said the popularity of its AI Mode for search, which it monetizes at a lower rate than traditional search, was a contributing factor. Search accounted for more than half of Alphabet's 2025 revenue, so the miss was a major red flag for investors who had already been unsettled by soaring capital expenditures, concerns about falling behind in cutting-edge AI models, and negative free cash flow in the previous quarter.
The stock has struggled. Alphabet shares soared 65% in 2025 but have since slid into the red, tumbling 19% in the second half and losing almost 19% in October alone, its worst month ever, which wiped out $758 billion in market value. The stock now trades at about 18 times earnings estimated over the next 12 months, down from 29 times in February and below its 10-year average of roughly 21.
Analysts are divided. Graham Capital Wealth Management's Stash Graham said the shares look reasonably valued if the search weakness is temporary, but could trade lower if the deterioration lasts. Citizens Inc. analyst Andrew Boone downgraded Alphabet to market perform, citing execution risk as AI agents, including Meta Platforms' Muse, emerge as a possible gateway to the internet. Dan Ives of Yorkville Ives called it the first quarter in which the negative thesis around AI crushing search has legs. Analysts have cut their 2026 earnings-per-share estimates by 4.5% over the past week.
Bulls point to accelerating growth in Alphabet's cloud business and the stock's relatively low valuation. River Wealth Advisors CEO Ed O'Gorman said the bloom is off the rose, but shares are starting to look cheap. Wall Street remains concerned about when heavy AI infrastructure investments will generate significant returns.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing