Down 12% This Year, Should You Buy Alphabet Stock?

Core Viewpoint - Alphabet's stock has declined 12% in 2025, underperforming the Nasdaq Composite, which is down about 1% year to date [1] Group 1: Competitive Landscape - Google faces increasing competition from AI models like OpenAI's ChatGPT and xAI's Grok, which are being used as alternatives to Google Search [5] - The partnership between Perplexity and Shopify poses a risk to Google, as it allows users to purchase products directly through the AI model, potentially diverting traffic from Google Search [6] - Alphabet's first-quarter earnings report indicated a mere 2% year-over-year growth in paid clicks for search ads, down from 5% in the previous year, raising concerns among investors [7] Group 2: AI Capabilities - Despite market concerns, Google's AI capabilities may be underestimated, with its Gemini model ranked highly in AI performance, particularly in science and mathematics [9] - Google's AI features, including AI Overviews in Search, have 1.5 billion monthly users, showcasing the integration of AI across its products [9] Group 3: Financial Performance - Alphabet's first-quarter revenue grew 14% year over year on a currency-neutral basis, attributed to its comprehensive AI solutions [10] - Google Cloud's revenue surged 28% year over year, reaching an annual run-rate of $49 billion, highlighting the company's strong position in cloud services [11] Group 4: Valuation and Growth Potential - Alphabet's stock is trading at 19 times earnings, significantly lower than the S&P 500 average of 28, suggesting it may be undervalued [12] - Analysts project the company's earnings to grow at an annualized rate of nearly 15% in the coming years, potentially doubling an investment in Google over the next five years [12] Group 5: Ecosystem Strength - Google maintains a strong competitive advantage with 2 billion users across seven services, including Gmail and YouTube, which could be difficult for competitors to overcome [13]