Since the artificial intelligence boom began, investors have worried about how Google’s dominance in internet search would hold up in an AI world.
If last week’s earnings report from parent Alphabet Inc. showing weaker-than-expected search revenue is any indication, those fears were well founded. And in a twist of irony, at least part of the threat is coming from inside the house, as Google’s expanding AI presence cannibalizes one of its strengths in the process.
“If the golden goose isn’t a golden goose anymore, then there’s reason to be worried,” said Stash Graham, chief investment officer at Graham Capital Wealth Management, which owns Alphabet shares.
Alphabet shares rallied on Wednesday amid the post-election euphoria that lifted most Big Tech stocks. But that doesn’t hide the historic selloff last week after the company reported earnings. Not only did search revenue miss, but the company also said the popularity of its AI Mode for search, which it monetizes at a lower rate than traditional search, was a contributing factor.
The prospect of weakness in search, which accounted for more than half of Alphabet’s 2025 revenue, was the latest red flag for investors, who had already been stung by its soaring capital expenditures, concerns it’s falling behind in cutting-edge AI models and negative free cash flow in the previous quarter. That marked a shift from its historic profile as a reliable free cash flow machine.
Alphabet shares have struggled this year, sliding into the red after soaring 65% in 2025. The selloff has accelerated since the spring, with the stock tumbling 19% in the second half, making it the second-biggest drag on the S&P 500 in that time. It lost almost 19% in October alone, marking its worst month ever and wiping out $758 billion in market value.
On the flip side, the downturn has also made the stock relatively cheap. It’s currently trading at about 18 times earnings estimated over the next 12 months, down from 29 times in February and a discount to its 10-year average of roughly 21. The shift to high capex and negative cash flow justifies the low valuation, Graham said. However, he was surprised by the deceleration in search growth, which makes the shares harder to value.
“It is trading at a respectable multiple right now if the search weakness is temporary, as I think it is,” he said. “But if there’s a lasting deterioration, then it should trade even lower.”
Considering Google is essentially synonymous with internet search, it’s difficult to overstate the importance of that business to Alphabet shareholders. The stock also saw search-related selloffs in 2023, 2024 and 2025 as well. However, the concerns seem more acute this time around, especially with Meta Platforms Inc. making a big splash with its Muse AI agent product.
“With greater competition from agents, which we view as the future gateway to the internet (replacing the browser or search), Google has significant execution risk ahead as it transitions search monetization,” Citizens Inc. analyst Andrew Boone wrote in an Oct. 29 report in which he downgraded Alphabet to market perform from outperform.
“This is the first quarter that the negative thesis around AI crushing search has legs,” famously bullish analyst Dan Ives of Yorkville Ives wrote in an Oct. 30 note.
Over the past week, analysts have cut their estimates for Alphabet’s 2026 earnings per share by 4.5%. Beyond the search issue, Wall Street is also concerned about the company’s heavy investments in building out AI infrastructure and when they will generate significant returns.
That said, bulls can find comfort in the accelerating growth in Alphabet’s cloud business and the stock’s relatively low valuation.
“The bloom is off the rose, but shares are getting to a point where they’re starting to look cheap,” said Ed O’Gorman, chief executive officer of River Wealth Advisors, which owns Alphabet shares.
“There are still real questions about what the revenue model will ultimately look like for agentic search, but Alphabet has other sources of revenue that are growing quite nicely, with cloud being the number one example,” he said. “There’s likely an opportunity to step in when you get such a significant knee-jerk selloff. I think it might be a bit overdone, since we’re still in the very early days for how this will play out.”
Vlastelica writes for Bloomberg.
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