Alphabet has found itself in a very critical moment with regulatory concerns and changing industry dynamics threatening to topple the very foundation of its business model. Since its search business earned the company over half of its revenue over the previous quarter, the firm is extremely vulnerable.
The US and European regulators are increasing the pressure quickly, placing the business of company under scrutiny. The government action is no longer just a hypothetical, with the risk that Alphabet would be compelled to separate some of its most important assets, pay enormous fines, or follow much more rigid guidelines.
Similarly, the level of competition is also increasing because the world is entering a new era of AI-powered search. There are fewer users who rely on Google Search in the same way, and new alternatives, such as AI chatbots, are beginning to shape user behaviour. Apple is even contemplating collaborations and innovations which may, in the future, redirect more search traffic to divert Google. OpenAI is coming to take its own browser and attack directly the market share of Chrome. It is a much more uncertain environment than before.
In order to remain competitive, Alphabet is already broadening its AI offerings, with its Gemini device and additions to its existing search engine ready to attract hundreds of millions of users each month. The Alphabet has some hope that it can hold the line with growth in YouTube and new government contracts. However, these good measures would work out, but the inherent dangers cannot be overlooked.
According to newer valuation models, Alphabet could actually be worth far less than it trades at. Investors are left with a firm that is innovative, with a realistic threat to future expansion and revenue flows. Because of that, it is hard to regard Alphabet as a safe investment currently.
