Alphabet's Recent Numbers Were Strong, but This Metric Could be a Red Flag

Key Points

• Alphabet reported another quarter of double-digit growth last week.

• According to some metrics, Google is losing market share in search.

• A judge ruled that its search engine was an illegal monopoly.

• 10 stocks we like better than Alphabet ›

The launch of OpenAI's ChatGPT in late 2022 sparked a lot of changes in the industry and the market, including the start of some panic among investors and analysts about the future of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and its cash cow, Google Search.

As a result, the giant tech stock has still managed to do well in the last two years, but it has underperformed "Magnificent Seven" peers like Microsoft, Meta Platforms, and Amazon (see chart below).

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Data by YCharts.

At least part of the reason for that underperformance seems to be related to potential AI-based challenges to Google Search. Despite those concerns, Alphabet continues to deliver steady growth, and that pattern was on display again in its second-quarter earnings report.

Alphabet impresses again

The tech giant reported 14% revenue growth year over year in the second quarter to $96.4 billion, easily beating the consensus at $94 billion and showing that advertising demand on its platform is alive and well. Growth was well distributed with Google Search revenue up 11.7% to $54.2 billion, and overall advertising revenue up 10.4% to $71.3 billion.

The cloud business remained strong with revenue up 32% year over year to $13.6 billion. On the bottom line, operating income increased 14% to $31.3 billion and earnings per share improved from $1.89 to $2.31, ahead of estimates at $2.19.

Alphabet doesn't give guidance, but the results showed that the business continues to execute despite fears about the sustainability of its business model.

However, there is one metric outside of the earnings report that shows why investors may be right to worry about the company's long-term future.

Image source: Getty Images.

Is the search empire in trouble?

According to some third-party measurements, Google's market share in search has declined slowly but steadily over the last two years as alternatives like ChatGPT and Perplexity AI have hit the market.

StatCounter reports that Google's market share has fallen from 91.1% in June 2024 to 89.6% in June 2025. That might not seem alarming as it represents just 150 basis points, and Google still dominates. But viewed another way, market share for Google's competitors has risen about 15% over the last year, which is not inconsequential.

There are other risks to Google not seen in the numbers. As alternatives emerge in the area, there are great challenges to its supremacy and the relationships that help it maintain its dominance in search.

For example, Alphabet stock tumbled when Apple acknowledged in court that it is considering making AI search engines like ChatGPT, Perplexity, and Claude options in its Safari browser, potentially jeopardizing Google's status as the default search engine. Apple has also considered acquiring Perplexity, which could lead it to displace Google entirely as the default search engine.

Google prizes its default status in Safari enough to pay Apple $20 billion a year, but that pay-to-play relationship could also be coming to an end after a judge ruled the company was operating an illegal monopoly, which could lead to the end of the payments to Apple.

Overall, the risks to both Google's market share and Alphabet's status in the face of antitrust rulings shouldn't be ignored.

Is Alphabet a buy?

The good news for Alphabet investors is that those risks seem priced into the stock. It currently trades at a price-to-earnings ratio of 20.5, which is less than the S&P 500 at around 27.5.

Alphabet has also responded to the threat from AI search engines with new features like AI Overview and AI Mode, which uses its Gemini large language model, to give users a similar experience to what they'd get from Perplexity or ChatGPT.

At the current stock price, Alphabet looks like a buy. Investors shouldn't ignore the threats to its market share or on the regulatory front, but it seems capable of continuing to deliver double-digit growth. That should make the stock a winner over the coming years, despite the evolving competitive landscape in the AI era.

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Jeremy Bowman has positions in Amazon and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.