Alphabet (GOOG 0.56%) (GOOGL 0.57%) trailed the market for much of the year, despite posting strong financial results. The reason behind the company's poor performance was its antitrust case, one of the most high-profile ones in years. The market was concerned about the worst-case outcome for these legal troubles and somewhat factored that into Alphabet's share price. However, the tech giant recently won a significant victory on that front, leading to its share price soaring and hitting an all-time high. Let's examine these recent developments further and determine whether it's still worthwhile to buy Alphabet stock.
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Alphabet dodges a bullet
A federal judge had already ruled that Alphabet holds a monopoly in internet search. The tech leader was waiting for its sentence. Regulators wanted to break up the monopoly by forcing Alphabet to divest Google Chrome, the world's most popular browser. That would have meant a major hit to the tech company's most important source of revenue, advertising, since Alphabet uses the browser to maintain its dominance in search (it is the default engine on Chrome), collect data to help guide targeted ad campaigns, and more.
However, Alphabet avoided that fate. Judge Amit Mehta ruled that the company can keep Chrome. The tech leader isn't coming out of this completely unscathed, though. The judge also decided that Alphabet can no longer enter into "exclusive distribution agreements" that make it the default search engine for third-party developers, such as Apple's Safari. This ruling encompasses not only Google as a search engine, but also Chrome, Gemini, and other products developed by Alphabet.
Still, overall, it was a favorable ruling for Alphabet, which is why the company's shares surged after the announcement. For a stock with a market cap of over $2 trillion, an almost 10% gain in one day is huge. But it's not too late to invest in Alphabet. Here is why.
Why there is plenty of upside left
Alphabet should remain the dominant force in search for the foreseeable future. It has now been able to fend off the two main threats to its massive lead in this market: the potential loss of its Chrome browser and the rise of AI chatbots. Concerning the second threat, Alphabet adjusted by adding an AI overview to its search engine. The company recently revealed that AI overviews have more than 2 billion monthly active users and are driving 10% more search volume for the queries for which they apply.
In other words, ChatGPT isn't the Google killer some thought it would be. Alphabet still generates billions in ad revenue thanks to its Google search business, as well as other sources of advertising sales, including YouTube. In the second quarter, Alphabet reported $71.3 billion in advertising revenue, representing a 10.4% increase from the year-ago period. Even more good news: Alphabet's cloud computing business is growing much faster. Cloud revenue for the second period was $13.6 billion, 31.7% higher than the year-ago period.
Alphabet's cloud business is also getting an AI boost thanks to the AI-related services the company offers. As of the end of the second quarter, Alphabet doubled the number of deals worth $250 million for its AI products compared to the same period last year. The company had also signed more deals worth more than $1 billion than it did during the entire fiscal year 2024. In other words, the company's AI business is booming, and it's just the beginning. Both the cloud and AI industries are still relatively early in their growth trajectories.
That should grant Alphabet a major long-term tailwind. The company should benefit from others. It holds a strong position in streaming, thanks to YouTube, and owns one of the leading companies in the autonomous vehicle niche. Self-driving cars aren't the norm yet, but they could eventually become widespread, and Alphabet should benefit from that. So, although search and advertising remain its biggest sources of revenue -- and these are now secure thanks to the outcome of its antitrust case -- Alphabet is a leader in other markets with massive growth potential.
The stock may have just reached an all-time high, but investors holding it for the long term should still expect solid returns over the next decade.
