Google has made a huge comeback. But can Alphabet keep this momentum going?

Alphabet shares have surged nearly 33% year-to-date, driven by advancements in AI products like Gemini, Google Cloud growth, and a favorable court ruling. However, the rapid ascent is prompting concerns among some analysts, such as Ben Reitzes, who question the sustainability of growth due to potential lower ad revenue from AI summaries and highlight Microsoft's stronger competitive position in AI inference via OpenAI/Azure. While the majority of analysts remain bullish, asserting Google's continued search dominance and AI's role in expanding the total addressable market, the stock's relative strength index at 75 suggests it may be overbought and susceptible to a near-term pullback.

Analysis

Alphabet's (GOOGL) stock has demonstrated significant momentum, rallying nearly 33% year-to-date and over 72% from its April low, propelled by a confluence of positive catalysts. Key drivers include accelerating growth in Google Cloud, a favorable court ruling preserving its Chrome browser's status, and strong user adoption of its Gemini AI application, which now boasts over 450 million monthly active users. This AI progress is further quantified by CEO Sundar Pichai's report of processing over 980 trillion 'tokens' monthly, a substantial increase from 480 trillion in May. Despite this, signs of caution are emerging. The stock's Relative Strength Index (RSI) at 75 indicates an overbought condition, suggesting susceptibility to a near-term pullback, a view supported by a consensus price target implying a 5% decline. Skepticism from analysts like Melius Research's Ben Reitzes centers on the potentially lower rate of return from ads on AI-driven search summaries and the stock's stark outperformance relative to Microsoft—up 41% this quarter versus Microsoft's 2%. This performance gap is the widest since January 2006, even as Microsoft demonstrates strong Azure growth tied to its OpenAI partnership. While the majority of analysts (52 of 64) maintain a buy rating, citing Google's entrenched 90%+ search market share and the belief that AI is expanding the total addressable market, the debate hinges on whether current valuation fully accounts for monetization risks in the evolving AI landscape.

Key Decisions for Investors

• Investors should weigh the strong fundamental momentum from AI product adoption and Cloud growth against technical indicators, such as an RSI of 75, which suggest the stock is overbought and may be due for a near-term consolidation.
• Monitor upcoming earnings reports for specific metrics on the monetization and ad-spend return on investment from AI Overviews, as this is a pivotal risk factor highlighted by cautious analysts.
• Consider the significant performance divergence between Alphabet (+41% quarterly) and Microsoft (+2%) as a potential relative value or pairs trade opportunity, given Microsoft's perceived strengths in AI inference workloads via its Azure/OpenAI relationship.
• For those with a long-term bullish thesis, any price weakness could present a buying opportunity, predicated on Google's sustained 90%+ search market dominance and the potential for AI to expand the total addressable market rather than cannibalize it.