Alphabet's stock performance hinges on the answers to these 3 big AI questions

By Christine Ji

Can Google's deal with Anthropic and its viral Gemini 'Nano Banana' feature translate into an earnings beat for the Big Tech company?

Alphabet's stock has risen 42% year to date, thanks to strong Google Cloud performance and Gemini adoption.

Alphabet Inc. has established itself as a formidable front-runner in the artificial-intelligence race. The company's third-quarter earnings report on Wednesday will provide a status update on its position.

Shares of Alphabet (GOOGL) (GOOG) have surged around 50% since the beginning of July. The stock's 42% gain year to date puts Google neck-to-neck with Nvidia Corp. (NVDA) in terms of 2025 performance.

Upbeat performance could drive a milestone quarter for Alphabet, with analysts tracked by FactSet anticipating $99.96 billion in revenue. The company has never topped $100 billion for a quarter but could get there with a beat. Analysts are also modeling $2.26 in earnings per share.

Whether Alphabet can hit that revenue benchmark will come down to how the company addresses these three high-stakes questions on the earnings call:

Can Google Cloud continue to accelerate?

Google's cloud-computing business has been picking up steam against its larger competitors, Amazon.com Inc.'s (AMZN) AWS and Microsoft Corp.'s (MSFT) Azure.

In the June quarter, Google Cloud saw revenue growth accelerate by four percentage points to 32%. The benchmark for the segment to clear this Wednesday will be 35%, UBS analyst Karl Keirstead wrote in a note last week.

Investors will be looking for signals that Google is capturing more incremental AI workloads. In addition to using Nvidia chips, Google has been developing custom tensor processing units (TPUs) to run its AI capabilities across the entire Alphabet portfolio. These custom chips have given Google a competitive edge for better search relevance, AI search integration, personalized YouTube recommendations and frontier Gemini models, Melius Research analyst Ben Reitzes wrote in a note Monday.

Google's recent deal to sell its TPUs to AI company Anthropic has shown that there's demand for the hardware outside of Google Cloud. It's led some analysts to wonder if Google's application-specific integrated circuits are chipping into Nvidia's stronghold in the market for AI semiconductors. Reitzes called the TPU "the most proven ASIC out there" with "the most tangible momentum."

Read on: Google wins high praise for its chip efforts - and that can help Broadcom's stock too

How is Gemini holding up against the competition?

The competition among large language models is red-hot. While Google's Gemini has gained significant popularity since the beginning of this year, innovation will be key as as new features continuously pop up and vie for consumer attention.

Gemini's Nano Banana image-editing feature helped the chatbot see a 54% month-over-month traffic surge in September, Bank of America analyst Justin Post wrote in a note earlier this month. Google has also been expanding into commercial use cases for LLMs with the recent launch of Gemini Enterprise.

However, OpenAI's recent product launches of short-form video app Sora and the ChatGPT Atlas web browser threaten to take market share away from Google products such as YouTube and Search.

For investors, Alphabet's stock performance is highly related to how effectively Gemini competes against rivals like ChatGPT, Post wrote. A Gemini revamp, new strategic deals to expand Gemini distribution or updates around Gemini user growth could be positive catalysts for the stock.

Read: OpenAI's new browser puts Google in the hot seat, and Alphabet's stock drops

Will AI eat Google Search?

The results of Google's antitrust ruling in September did not require Google to divest its Chrome browser, removing an overhang on the stock.

But as seen by OpenAI's launch of ChatGPT Atlas, the threat of AI-native offerings on Google's Search business lingers. If consumers increasingly turn to ChatGPT or AI previews on Google, search traffic and the corresponding ad revenue could take a hit.

Despite these concerns, Google's search business has remained strong. Last quarter, Google shared that its paid clicks grew by 4% in the June quarter, a reacceleration from the 2% growth rate in the previous quarter.

Post wrote in a note last week that he expects another quarter of strong search results. Even if LLMs cause a decline in organic traffic, another quarter of paid click growth in the 4% to 5% range would show that the quality of engagement has improved.

-Christine Ji

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10-28-25 0730ET