Analyst Says Alphabet (GOOG) Becoming AI Leader Amid 'Forced' Innovation Away from 'Drug of Monetization'

We recently published 10 Stock News You Should Not Miss as Tom Lee Reiterates Bullish Market Outlook Amid AI Catalysts. Alphabet Inc (NASDAQ:GOOG) is one of the stock news you should not miss.

Scott Devitt from Wedbush said in a recent program on Schwab Network that Alphabet Inc (NASDAQ:GOOG) seems to have become an AI leader from an AI laggard. He believes the AI revolution forced the company to innovate.

“This company’s original mission was to organize the world’s information and make it universally accessible and useful. I guess I would argue that at points in time, when it lacked competition, it maybe got caught up being addicted to the drug of monetization. This whole new wave of innovation actually has the potential to be a net positive for Google because it’s forcing this giant to act in ways it wouldn’t naturally have done on its own, and it has all the assets to be very competitive. You’re seeing that with the integration of AI overview into search results and really throughout the entire platform now that this AI innovation wave is underway. Business multiples have already expanded a little bit from 17 to the low 20s, more on par with where Meta trades now. On an ongoing basis, this company has the ability to grow revenues in the low double digits with some operating margin expansion over time. So you get about a 15% operating income growth rate and a stock that probably has a return similar to that over the next 3 to 5 years on an annualized basis.”

Alphabet is in a strong position to develop an AI ecosystem around search and Cloud. Businesses around the world are migrating to Google Cloud. Alphabet’s cloud margin rose to 20.7% in the second quarter from 11% last year. Google Cloud chief said earlier this year that the business has a backlog of $106 billion, and it’s “growing faster than our revenue.”

According to data from SimilarWeb, ChatGPT’s market share in AI chatbot traffic is shrinking despite being a leader. Gemini, on the other hand, is growing fast and has quadrupled its market share in the last six months.

SaltLight Capital stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its second quarter 2025 investor letter:

“To illustrate our approach to navigating these uncertainties, we turn to our recent investment in Alphabet Inc. (NASDAQ:GOOGL), which exemplifies balancing innovation risks with established strengths.

Innovator’s Dilemma: Google is grappling with an Innovator’s Dilemma as it protects its $200 billion search business from a significant technological shift. To put it plainly, Google Search’s primary purpose is to act as a ‘match-maker’, guiding users to the best source for their query on the open web. However, artificial intelligence is changing this role, with AI handling much of the searching, synthesis, and answering for the user, reducing the need to visit destination websites to gather information. A natural tension is emerging.

Humans naturally gravitate towards the path of least resistance, increasingly depending on AI to undertake cognitive tasks for them. This development poses challenges for content providers and for Google itself, which derives advertising revenue from these interactions…” (Click here to read the full text)

While we acknowledge the potential of GOOG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.