Yahoo Financeยท2025-10-28 17:05Core Insights - Alphabet has a valuable ecosystem with over 2 billion daily users across Google Search, YouTube, and Gmail, but faces new threats from AI competition [1] - OpenAI's ChatGPT has surpassed Google Gemini in user engagement, creating competitive pressure on Google's search business [2] - Alphabet's substantial investments in technology infrastructure provide a defense against competition and support investor returns [2] Financial Performance - Alphabet is set to report Q3 earnings on October 29, with Q2 showing solid growth; 74% of revenue comes from advertising, primarily search [4] - Search and other services reported a 12% year-over-year revenue growth in Q2, driven by strong engagement with AI Overviews [4] - CEO Sundar Pichai highlighted that AI is positively impacting all business segments, including YouTube and subscription services [5] Strategic Opportunities - Alphabet has promising ventures in self-driving cars through Waymo and quantum computing, which are not currently reflected in the share price [6] - The company's investments in AI infrastructure are supported by growing operating cash flows [6] Competitive Advantage - Data center capacity is a critical asset in the AI race, positioning Google ahead of competitors [7] - Alphabet's full-stack technology infrastructure, including Google Cloud, proprietary AI models, and custom AI chips, is a significant competitive advantage [8] - Investors are currently underestimating Google's potential in the AI market [8] Cash Flow and Investments - Alphabet generated $133 billion in cash flow from operations over the last year through Q2 2025, funding approximately $85 billion in capital expenditures for servers and data center construction [9]