Today, the lowest-valued stock in the “Magnificent Seven” is Alphabet (GOOG 1.83%) (GOOGL 1.69%), and it’s not close. In fact, Alphabet even trades at a lower valuation than the overall market. That’s quite a shocking development considering Alphabet’s long track record of success and innovation capabilities.
The market is currently focused on the rise of artificial intelligence chatbots and their implications for Alphabet’s core Search business. However, not only is Alphabet making solid moves to sustain Search’s relevance, but the company also has not one but three other major businesses growing really fast.
Five years from now, Alphabet’s earnings look like they’ll be more balanced between not just a resilient Search business but also all four of these major business lines.
Image source: Getty Images.
How Alphabet is making Search relevant in the AI era
At first glance, it’s unsurprising that investors may be worried about AI’s impact on Alphabet. After all, Alphabet has long had a virtual monopoly on Search, which is a very profitable business that routinely grows double-digits year in and year out.
But at a massive $200 billion revenue run-rate, investors may begin wondering how much Search could grow from here, even without challengers. And when you add the new competitive threat from AI chatbots ChatGPT, Anthropic, Perplexity and others, it makes sense that some see the end of Alphabet’s dominance in the years ahead.
However, Alphabet has rapidly caught up in frontier large language models (LLMs), rolling out its Gemini 2.5 model one month ago. Upon the rollout, Gemini is generating positive reviews, with some saying that in several use cases, Gemini 2.5 compares favorably to ChatGPT 4.5, which is currently regarded as the best-in-class model. On the recent call with analysts, CEO Sundar Pichai noted, “By many metrics, I think we have the best model out there now.”
Regardless of how Gemini compares to ChatGPT, Alphabet has clearly closed the big gap between Gemini and early AI leaders over the past couple of years.
Google Search habits may be hard to kick
Investors may also be underestimating the advantages Google Search has as consumers adapt to using AI. To that end, Alphabet is infusing and improving the existing Search experience — which is still a part of billions of people’s daily routines — with increased AI capabilities. After all, Alphabet still managed to grow its Search and Other segment by 13.1% in 2024 despite the emergence of various LLMs.
Exactly one year ago, Google began to implement AI overviews, which essentially use Gemini capabilities to perform an enhanced multipart Search, then summarize the findings, helping users piece multipart searches together into one quick and easy prompt.
The good news is that for Alphabet, management has said it monetizes AI overviews at the same rate as traditional Search. That appears evident in Search’s continued revenue growth.
In addition, Alphabet is currently testing a new Search feature called “AI mode,” which allows for even more complex multipart and multimodel queries and enables follow-up questions. The beta testing began last month, and when AI mode is rolled out, Alphabet will have two AI enhancements to the existing Search experience, along with the premium Gemini model.
People still have a strong Google Search habit, evidenced by its size and growth last year. And given that most AI start-ups like ChatGPT are mostly losing money and rely on subscriptions — or getting people to pay for AI — Google’s free ad-based Search franchise, which is already an ingrained habit, may give it a competitive advantage in terms of retaining its large audience and affording it more time and resources to compete over the long term.
Non-search businesses are taking off
While Search is still Alphabet’s main business, at 56% of revenue and likely an even higher share of profits, Alphabet has been cultivating several other segments for years that are just now hitting inflection points. In five years, they are likely to contribute a much greater percentage of revenue and profit. The three key future growth drivers are YouTube, Google Cloud, and Waymo.
After 20 years, YouTube has become the dominant online streaming video platform and continues making inroads into traditional media through subscription and ad-based formats. Last year, YouTube ads grew 15%. And while Alphabet lumps YouTube subscriptions in with all its other subscription services, overall subscriptions grew 16%.
Meanwhile, while Google was once an afterthought and a late entrant in cloud computing, it has become a formidable business in today’s three-company cloud infrastructure oligopoly. Last year, Google Cloud grew 31% to $43.2 billion in revenue and $6.1 billion in operating profit.
Google Cloud just became profitable in the first quarter of 2023, and its margin has expanded rapidly with increased scale. In fact, Google Cloud’s operating margin nearly doubled to 17.8% in the first quarter relative to the year-ago quarter. The good news is that even that improved margin is still well below the other two larger cloud leaders, leaving much more margin expansion to go.
Given that growth trajectory and the prospect of increased margins, it’s not a stretch to think Google Cloud’s profitability could become a very meaningful contributor to Alphabet’s overall profits in five years, from nearly zero just two years ago.
Image source: Getty Images.
And Waymo could be a game-changer
Finally, another huge potential business in the making isn’t even contributing any profit at the moment but rather generating losses: Waymo.
But 2024 was a huge year for the fledgling autonomous robotaxi service, as the company expanded its Phoenix, San Francisco, and Los Angeles services. In December, YipIt data reported that Waymo had achieved a 22% share of the ride-hailing market in San Francisco, on par with Lyft just 15 months after launch.
As of early 2025, Sundar Pichai noted that Waymo was already providing 200,000 paid rides per week. Waymo’s recent launch in Austin, Texas, in March has reportedly been a big success, generating twice as many cumulative rides in its first month as the San Francisco launch two years ago.
Of course, Waymo isn’t the only company trying to get into the autonomous taxi game. Tesla (TSLA 2.41%) is set to launch its robotaxi service in June. Other autonomous driving start-ups are also looking to make a splash.
Still, there is something to be said for Waymo being first-to-market with autonomous taxis, both from a first-mover and name-recognition perspective in generating rider trust. After all, the longer Waymo has been on the road without incident, the more trusted it will become, making it more of a go-to for prospective riders.
While autonomous vehicles have been seen as somewhat of a risky science experiment to date, the projections for market growth are massive. Various research firms are putting the total market size between $370 billion and $450 billion by 2033 — and it is sure to grow from there.
While it remains to be seen how the competition shakes out, Waymo is likely to get a significant share of that pie as the early leader. That would make it a fourth massive business under Alphabet’s umbrella, along with Search, YouTube, and Cloud.
Alphabet won’t be just a Search box anymore
While it’s true that Search has competitive questions today, investors should still expect Search to generate huge profits in the years ahead, even if growth slows down over the next five years. However, Alphabet’s valuation seems to be more than factoring that in. But the biggest difference to Alphabet five years out will be that Search is likely to decrease in importance, especially as Google Cloud and Waymo come into their own.
As long as Alphabet can maintain Search profitability as it matures and fights LLMs, the other non-search franchises should pick up the slack in terms of growth. If that comes to pass, the stock is a solid value today — if not a bargain.
