$Alphabet(GOOG)$ was the only stock in the Magnificent 7 to close higher yesterday. The rally was driven by a series of AI-powered updates to its core search engine, the most notable being the introduction of “AI Mode,” which Google calls its “most powerful AI search.”
For years, one of the biggest overhangs on Google’s stock has been the fear that AI could replace the traditional search engine. But has this latest AI search launch solved this problem?
With leading AI models, a massive traffic ecosystem, and proprietary infrastructure, Google has built a unique advantage that’s hard to replicate. Few companies can truly compete: Apple’s AI model remains delayed, OpenAI is still working to expand practical use cases for ChatGPT, and Anthropic has yet to gain a meaningful market foothold.
In contrast, Google’s strategic positioning appears remarkably forward-looking. Following the I/O keynote, many in the industry now believe Google has established a clear leadership position in AI. From the Gemini 2.5 model leapfrogging competitors to the full rollout of “AI Mode,” this isn’t just a comeback—it may be a declaration of dominance.
In the AI era, competition will no longer be defined by traditional internet metrics like users, engagement, or traffic. Google’s full-stack ecosystem unveiled at I/O is designed to enable this vision—powering the rise of general-purpose AI assistants.
As the path to AI monetization becomes clearer, Google's stock is seeing a corrective rally. Concerns over ad revenue may already be priced in, with Google trading at just around 18x PE. Now, it’s simply a matter of waiting for incremental returns from AI commercialization to materialize.
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