Google Just Triggered a $1 Billion AI Price War: Does It Make Alphabet Stock a Buy Right Now?

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) recently debuted at its I/O developer conference its long list of new AI services. The company also said that enterprise companies that switch from existing frontier AI models -- namely, Anthropic's Claude and OpenAI's ChatGPT -- to Google Gemini could save $1 billion annually if they migrated 80% of their workloads.

Determining how to pay for costly AI services has become an increasing concern for companies as they transition their employees and internal systems toward implementing more AI across workloads.

Alphabet CEO Sundar Pichai said that using its new Gemini 3.5 Flash "delivers frontier-level capabilities at less than half the price" of comparable models.

That's a big deal, and it could give the company an advantage in AI.

Image source: Getty Images.

Google Gemini is rising fast and is cheaper than ever

It wasn't all that long ago that ChatGPT was the obvious choice for companies looking to incorporate AI services or build new ones. About a year ago, ChatGPT held an estimated 77% of the AI web traffic market, according to data from Similarweb.

But that dominance is slipping. The latest data shows that ChatGPT now has about 54% of the market, while Google Gemini has nearly quadrupled its market share over the same period to about 27% now. It should be noted that Google has some structural advantages in this area because it integrates Gemini into its Google search results.

Still, it's a notable increase in market share, and the company said it now has more than 900 million monthly active Gemini app users, double the number a year ago.

And Google is hoping Gemini can gain even more traction by offering its highest-prices tier at a lower cost than before. The company said it's cutting its unlimited Ultra AI plan for Gemini by 20%, down to $200 per month.

And Google just sweetened the deal for enterprise customers by making Gemini even more capable than ever. The newest version of Gemini includes more agentic AI capabilities, including Gemini Spark, which runs 24/7 in the cloud even when a computer is turned off.

In short, Google is offering enterprise customers some of the most capable agentic models for cheaper costs at a time when Gemini adoption is already accelerating. Millions of companies already trust Google services, like Workspace, which (when paired with a cheaper AI plan) could lower the barrier to adoption for Gemini.

Does Alphabet's expanding AI strategy make the stock a buy right now?

Alphabet isn't a buy solely based on its new agentic push and its lower price. But I think it does contribute to the company's overall AI strategy, which is already paying off. And it's the combination of all of this that makes Alphabet stock a buy.

Gemini enterprise user adoption rose 40% sequentially (the company didn't disclose the specific number of customers). That's impressive on its own, but it adds the already-impressive number of 900 million monthly Gemini users I mentioned earlier.

And Alphabet's AI growth is already leading to revenue gains. Google Cloud sales surged 63% higher in the first quarter to $20 billion in part from "enterprise AI Solutions and enterprise AI Infrastructure."

Pair all of that with Alphabet's impressive finances -- the company's earnings popped 82% to $5.11 in the most recent quarter -- and Alphabet looks like a no-brainer buy right now. Alphabet also had $10 billion in free cash flow and $38 billion in cash and cash equivalents in its most recent quarter, giving it plenty of capital to continue investing in new AI services.

And if you need even more convincing, Alphabet's price-to-earnings (P/E) ratio is just 30 right now, making the stock a relative deal compared to the broader tech sector P/E ratio of about 36. What's not to like?

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.