MW Alphabet's stock is charging even higher. Here's how Google's AI bets are resonating.

By Britney Nguyen

Shares of the Google parent company rallied into a second session, with some investors more encouraged about the company's competitiveness in AI

Alphabet Inc. is "moving to offense" on artificial intelligence, according to a Bank of America analyst, and that continues to support its stock.

The Google parent company's stock was among the S&P 500's top performers on Thursday afternoon, as Wall Street cheered a slate of AI-focused announcements from Google's annual I/O developer conference this week.

Despite dipping on the first day of the event on Tuesday, Alphabet shares $(GOOGL)$ have gained in the last two trading sessions and were up 1.9% during afternoon trading on Thursday.

Among the announcements at I/O was the rollout of AI Mode in Search, which Google called the "most powerful AI search" with advanced reasoning and multimodal capabilities. The new AI feature comes a year after the launch of AI Overviews and as the dominant search engine faces threats from AI-powered search alternatives from competitors such as OpenAI and Perplexity.

See more: Google is doubling down on AI in Search as it faces heightened threats

Alphabet's stock dropped more than 7% on May 7, after Apple Inc. $(AAPL)$ hinted at challenges for the company's search business. But Alphabet shares have more than recovered those losses and are about 6% higher than they were before that selloff.

Melius Research analysts pegged Tuesday's initial stock drop on how investors were "in the dark" regarding how Google plans to monetize AI Mode with ads. But in their Wednesday report, they noted that features within AI Mode "showed the promise of AI - and did show some obvious monetization routes" - the most obvious ones being for shopping, booking travel and reservations and payments, according to the analysts.

"Google has done the best job it seems in big tech of demonstrating multi-modal understanding, agentive capabilities and deep knowledge that can all be executed in real time to bring value to customers," Melius said.

Compared with its chatbot rivals, Google's AI Mode has the advantage of being part of Google's app ecosystem, the analysts said, meaning the company had "better figure out how to make money with it since search remains the vast majority of Alphabet's profit and accounts for over 56% of revenue."

Research analysts at Baird said in a note on Wednesday that it was "encouraging to witness the company innovating quickly in search" and committing to monetizing its services.

"While competition in search is intensifying, Google presented, in our view, a compelling suite of new ad products and agentic capabilities that can expand monetization and contribute incrementally to revenues," the Baird analysts said.

The analysts added that Google will likely continue its growth on future AI-powered products and services.

With AI Overviews and now AI Mode, Google will be able to offer more valuable ads with better visibility and reach, because the features give it more "meaningful context from users" through longer queries, conversations and the ability to pull data from connected Google apps, the analysts said, "directly contradicting the bearish view that new AI formats will simply disintermediate core search."

The analysts said they expect advertisers will be willing to adopt Google's new ad formats quickly, because Google has indicated that it has been able to monetize AI Overviews similarly to its traditional search business.

"While many investors remain skeptical, Google continues to report growth in queries where AI Overviews are shown, and Gen-Zers are the most active search cohorts," the analysts said.

Evercore ISI analysts said in a Wednesday note that while they "don't believe there will be only one AI winner ... we think Google has successfully proven that it will remain a leader in the AI race."

In a blog post on Tuesday, Google said its largest markets, including the U.S. and India, saw a more than 10% increase in usage of Google for queries that included answers from AI Overviews. The Evercore analysts said that suggests "AI may actually accelerate" the use of Google Search, rather than harm it.

But while Melius analysts acknowledged that Google has opportunities for monetization through some of its new AI features, they questioned the company's new $250-a-month subscription to its suite of AI models and tools, as well as its Gemini Advanced monthly subscription, which costs $20.

"While the costs are far less than the $20k/month specialized agent service that OpenAI may be planning on releasing for enterprise, the question still remains on how much users will be willing to pay for AI," Melius said.

The analysts said Google's best bet at monetization is "by providing a few answers that reduce clutter (10 pages of links) and help focus consumers on outcomes."

-Britney Nguyen

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May 22, 2025 16:24 ET (20:24 GMT)

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