Shares of Alphabet have hit record highs. In fact, it has flipped its story from laggard to leader, outperforming the market and its peers since the start of this year.
This was despite headwinds, regulatory scrutiny and growing competition in its Search market share.
Fast forward, Alphabet is a different story today.
So, what’s driving Alphabet shares at all-time peaks? Here’s 5 things you need to know.
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1. Alphabet’s Golden Goose – Advertising
Earlier in 2Q2025, Alphabet reported a “standout” quarter. Its revenues reached ~$96 billion. This is probably one of Alphabet’s strongest results yet.
Now, Google Services still drives most of Alphabet’s revenue – including Google Search and YouTube Ads. This segment grew 13% q/q, up 12% from last year.
Meanwhile, Google Search is the main contributor of its Google Services revenue. In 2Q2025, it was 65% of Services revenue. In fact, Search drew in ~$54 billion in revenue, which grew 12% y/y and 7% q/q.
2. Why AI is Set to Bring Google to the Next Level
AI is clearly driving an increase in Google Search usage. The number of queries has grown. There are even more ways Google users are engaging with Google Search today.
Its CEO Sundar Pichai spoke about how AI is being integrated at all levels across the business:
- AI Overviews: >10% increase in queries when shown for searches
- Multimodal search use increases: More users are combining different products in Search. For instance, using Lens/Circle to Search together with AI Overviews. Google Lens searches have grown 70% since last year. Circle to Search is now on over 300 million Android devices.
- AI Mode: an end-to-end AI Search experience that has over 100 million active users in US and India
The various rollouts have made it more convenient for users to tap on AI within the familiar Search tool. In turn, this motivates users to stay within the Search ecosystem – this further enforces Google’s flywheel ecosystem.
Meanwhile Alphabet’s Other Services include YouTube Ads, Google Network and Subscriptions, Platforms & Devices have reported double-digit growth.
This is apart from Google Network, which declined by 1%. Moreover, its YouTube Ads saw ~$9.7 billion in revenue. This was up 13% from last year.
On Alphabet’s Ad business, AI tools like AI Max and Smart Bidding have resulted in its users in a 14-19% increase in conversions. This gives advertisers a reason to spend more on Alphabet’s advertising platform.
This will likely drive greater Ad usage going forward.
3. Google Cloud Is Quietly Becoming Profitable
In its latest 2Q2025 results, Google Cloud revenues hit $13.6 billion. This was up 32% versus last year.
What’s more, the tech giant reported strong demand for its Cloud services, with new customers increasing 28% q/q. So far, the company saw large deals over $250 million doubled over the past deal.
The thing is, profit margins for Cloud are smaller than that of Services. But this has improved over the past year. In fact, this quarter’s Cloud income was ~$2.8 billion at a 20% margin, versus 11% from a year ago.
This highlights greater expense efficiency, which the team will continue to prioritise.
4. Antitrust Ruling — A Major Overhang Lifted
Alphabet shares jumped 8% after a favourable ruling on its US antitrust case earlier in September. Recall back in 2024, Google was ruled to hold an illegal monopoly in internet search.The Department of Justice proposed severe penalties.
Now, the good news: No forced breakup of Google Chrome or Android. And Alphabet is still allowed to make payments to distribution partners like Apple. This will help keep Google’s dominant 90% market share in the global search engine market.
However, the bad news is Alphabet needs to share specific Search data. What’s more, exclusive agreements to preload Google products are no longer allowed. These products include Search, Chrome, Google Assistant or Gemini.
5. What I’m Watching Next – Opportunities and Risks
Alphabet has spread its bet across the AI race, competing with peers including Microsoft, Meta and NVIDIA on its breadth of different AI stacks.
However, along with these bets, there might be concerns on growing margin pressures. Alphabet said during its 2Q2025 call it will have another $10 billion boost in capital expenditure for the year.
However, I believe this is inevitable with its bets that Alphabet is making. The team has prioritised efficiency too. The growth in cloud operating margins is a good example of their efforts.
These all contribute to users defaulting to Google Search out of habit. In turn, this gives Google a home-based advantage in rolling out its AI suite to a large user base. This is critical to the success of these products.
As we have seen from this quarter’s results, AI in Search has a positive impact on increasing usage.
My Final Thoughts
Alphabet is firing on all cylinders, especially both its strong financial results and positive anti-trust ruling outcomes. Yes, spending will go up. Yes, there will be more competition in the AI race.
But I also expect Alphabet’s market share of users to grow. This I believe is what’s driving Alphabet’s strong shares performance.
