Alphabet, Google's parent company, has continued its steep stock price surge over the past year, and analysts are assessing that growth potential remains sufficient despite concerns about cost burdens from expanded artificial intelligence (AI) investments.

While large-scale AI investments could sacrifice some short-term profitability, the analysis indicates that the company is further strengthening its long-term competitiveness as its search, cloud, and enterprise AI businesses maintain solid growth.

▲ Sentiment reversal in one year from antitrust and AI disadvantage concerns

Just last summer, Alphabet faced antitrust regulatory pressure and concerns about weakening dominance in the search advertising market.

There were also considerable forecasts that OpenAI's ChatGPT would erode search traffic and threaten Google's search market share of over 90%.

At that time, Google failed to sufficiently demonstrate its presence in AI competition, and some analysts even raised arguments that company division could actually increase corporate value.

However, the situation has changed dramatically one year later. Antitrust risks have been substantially resolved, and concerns about threats to the search business have proven to be excessive.

Alphabet successfully defended its search business, which accounts for more than half of total revenue, and has risen from a laggard to a leader-pursuing position in AI competition.

▲ Stock price surge over 80%…valuation still not burdensome

According to the Wall Street Journal on the 23rd (local time), Alphabet's stock price has surged over 80% over the past year, positioning itself as the world's third most valuable listed company after Nvidia and Apple.

With the stock price increase, the forward price-to-earnings ratio (PER) has risen to approximately 25 times, but the market does not view this as excessive. Considering future growth potential, a consensus view is that the valuation remains reasonable.

▲ Growth demonstrated by earnings…24% revenue increase

This growth potential was also confirmed in recent quarterly earnings reports.

Alphabet's quarterly revenue increased 24% year-over-year, and with cloud business revenue increasing substantially, the company demonstrated that AI investment effects are translating into earnings.

▲ Market tensions over expanded AI investment…but positive for securing competitiveness

Of course, there are concerns as well.

Alphabet raised its capital expenditure (CAPEX) forecast for this year to approximately $200 billion, an increase of $15 billion from the previous guidance, and indicated that even larger investments will be made next year.

According to FactSet, Alphabet's capital expenditure in 2027 is expected to reach $257 billion, surpassing that of Amazon, Meta, and Microsoft.

If market expectations prove correct, massive investments could reduce free cash flow (FCF) to nearly zero levels. However, at the same time, the likelihood that Alphabet will not become the first company to reduce spending in the AI investment competition has also increased. This also means that if competitors slow their investment pace, Alphabet can maintain its technological advantage.

▲ AI model launch delays are a variable…but impact is limited

Alphabet is showing signs of trailing somewhat in the competition to develop top-performing AI models.

The latest model, 'Gemini 3.5 Pro,' was originally scheduled for release in June but has been delayed for several weeks.

In the AI industry, launch delays can lead to weakened competitiveness. Since competitors continue to advance, catching up after falling behind becomes difficult, a challenge Meta recently experienced as well.

However, the market believes Alphabet will be less impacted than Meta. Because of its solid corporate customer base, the likelihood of customer churn from a temporary launch delay is not significant.

▲ Corporate customers increasing instead…continued AI service growth

In fact, corporate customers are not leaving Alphabet but rather increasing their engagement.

CEO Sundar Pichai announced at the beginning of this year that paid active users of the enterprise AI service 'Gemini Enterprise' increased 40% in the first quarter compared to the previous quarter.

While in the AI coding tool field the latest model is important and this delay is somewhat disappointing, the assessment is that most of Alphabet's core businesses, such as search and cloud, do not necessarily require world-class AI models.

▲ Efficiency-focused AI strategy…strengthening speed and cost competitiveness

Recently, Alphabet has focused on developing more efficient AI models rather than competing in ultra-high-performance models.

Through this, it is pursuing a strategy to increase response speed of the Gemini chatbot and reduce computing resource usage.

In a situation of intense competition for AI computing resource acquisition, an efficiency-enhancing strategy is assessed as a practical choice that can simultaneously achieve cost reduction and service quality improvement. In the current AI market, not only top performance but also fast response speed are becoming important competitive factors in user acquisition and retention.

구글-고정밀-지도-반출-조건부-승인-2개월기술-협의-교착-장기화(Photo : 연합뉴스)

▲ Search advertising and cloud both showing growth

Alphabet's existing core business is also maintaining steady momentum.

The advertising market is showing resilience beyond expectations, and the AI Overviews feature applied to search results is actually contributing to increased search traffic.

BMO Capital Markets forecasts that Google's search business will maintain double-digit revenue growth on a quarterly basis for the remainder of this year. In fact, second-quarter search revenue increased 17% year-over-year.

▲ Cloud business high growth…AI benefits beginning in earnest

The most notable area is the cloud business.

Alphabet recorded cloud revenue of $24.8 billion, an 82% increase, and announced that it has secured $514 billion in total order backlog based on major customers including Apple, Meta, and Anthropic.

Additionally, the company has begun supplying its own AI chip TPU (Tensor Processing Unit) to external customers' data centers, and expects related revenue to expand significantly starting next year.

The analysis suggests that as long as AI demand continues, Alphabet has a high likelihood of further expanding its cloud market share.

In comparison, Amazon's cloud business showed only 28% growth with $37.6 billion in first-quarter revenue, and Microsoft's recent quarterly growth rate was around 40%.

▲ Substantial cash holdings…ample capacity for continued AI investment

Alphabet's ability to maintain financial soundness despite aggressive investments is also cited as a strength.

The company issued corporate bonds worth approximately $60 billion this year and raised an additional approximately $85 billion in capital in June. As a result, cash and marketable securities at the end of the second quarter totaled $242 billion.

While market reaction has somewhat dulled as recent corporate bond supply related to AI investments has surged, Alphabet is assessed to be in a position to sustain long-term AI investment competition based on a much more flexible financial structure than competitors.

▲ Focus on long-term growth potential over short-term concerns

Alphabet's stock price has underperformed the Nasdaq Composite Index rise slightly this year and has faced recent adjustments following the AI model launch delay announcement. Additionally, concerns about the potential spread of low-cost AI models from China are also dampening investment sentiment.

However, the market views these concerns as merely temporary variables. Despite expanded AI investments and some schedule delays, the growth trajectory of search, cloud, and enterprise AI businesses remains solid, and the analysis that Alphabet's long-term growth story has not been significantly damaged is gaining traction.