TLDR:
- Alphabet stock has declined 18% in 2025 amid concerns over AI competition and regulatory scrutiny
- Advertisers are pulling back spending, particularly in brand advertising, affecting Google’s core revenue source
- Google Cloud continues to gain market share against competitors like AWS
- Alphabet recently announced Gemini 2.5 Pro Experimental, a new AI reasoning model
- Despite challenges, analysts remain optimistic with an average price target of $212.16 (37% upside)
Advertising Headwinds
Alphabet, the parent company of Google, has seen its stock struggle in 2025, dropping 18% since January. The tech giant faces multiple headwinds affecting investor confidence, even as it continues to innovate in artificial intelligence.
The company’s core Search business is under pressure from AI competition and ongoing global regulatory scrutiny. These challenges come at a time when advertisers are pulling back spending.
According to Guggenheim analyst Michael Morris, advertiser feedback indicates a spending pullback beginning in March. This slowdown is most noticeable in brand advertising and general internet demand.
Economic uncertainty and weakening consumer appetite are driving these advertising cuts. As most of Alphabet’s revenue comes from ad sales, this directly impacts the company’s bottom line.
Morris expects the advertising slowdown to continue into Q2. He has adjusted his forecasts downward for YouTube advertising and the Google Network accordingly.
Despite these adjustments, Morris notes that YouTube continues to show fundamental strength. The platform recently surpassed Disney to become the most-watched television distribution service in February.
Cloud and AI Innovation
Google Cloud has been a bright spot for Alphabet. The division has been gaining market share, outpacing the growth of industry leader Amazon Web Services in recent quarters.
Management attributes this success to core Google Cloud Platform products, AI infrastructure, and Generative AI offerings. However, broader cloud demand remains supply constrained according to recent earnings calls.
Alphabet continues to push forward with AI innovation. The company recently announced Gemini 2.5 Pro Experimental, only about three months after introducing Gemini 2.0.
The new model’s key improvement is advanced reasoning capability. This allows it to analyze information, draw logical conclusions, incorporate context, and make informed decisions before responding.
According to Alphabet, Gemini 2.5 has received the highest score on the LMArena leaderboard, outperforming models from competitors like OpenAI, xAI, Anthropic, and DeepSeek.
The model shows particular strength in coding, math, and science. Coding performance represents a significant improvement over previous Gemini versions.
Like other Gemini models, version 2.5 is multimodal, handling information from text, audio, images, and video. It can also process data from entire code repositories.
Analyst Outlook and Future Growth
Despite these advancements, concerns persist about Alphabet’s position in the AI landscape. Some investors question whether the company is falling behind competitors.
Alphabet’s stock currently trades at a forward price-to-earnings ratio of about 18 times this year’s analyst estimates. This valuation appears attractive to some analysts given the company’s leadership position.
Morris maintains a Buy rating on Alphabet stock despite trimming his price target from $215 to $190. This adjusted target still implies a 17% upside from current levels.
The broader analyst community remains more optimistic. The average price target sits at $212.16, suggesting potential 12-month gains of 37%.
Out of 36 analysts covering the stock, 26 rate Alphabet shares a Buy, while 10 hold a neutral position. This gives the stock a Moderate Buy consensus.
Beyond AI, Alphabet continues to innovate in other areas. The company has made breakthroughs in quantum computing with its Willow chip, which reduces errors as it scales up the number of qubits.
Alphabet’s Waymo unit has also established a lead in autonomous driving. It’s currently the only company offering paid robotaxi rides in the U.S. and continues to expand to new cities.
The company recently announced plans to acquire cybersecurity firm Wiz, adding another fast-growing business to its portfolio. This diversification may help offset challenges in its core advertising business.
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