Over the last week, Alphabet (NASDAQ:GOOGL) stock was up 9% following the significant beatdown of estimated earnings per share (EPS) of $2.02 vs $2.81 reported. Likewise, the company generated $90.2 billion in Q1 revenue, up 12% year-over-year, beating the analyst consensus of $89.2 billion.
Compared to Google Services’ modest 10% growth to $77.3 billion, Google Cloud generated the most yoy increase, at 28% to $12.3 billion. In turn, this suggests that Alphabet’s AI investments were warranted as Google Cloud Platform (GCP) serves as the AI infrastructure for product rollouts.
Speaking of which, Google’s AI Overviews accrued 1.5 billion monthly users, mirroring the company’s existing search engine dominance. But these AI-generated summaries on top of Google Search results are just a snippet of Alphabet’s emerging AI-defined ecosystem. The question is, are Google’s AI features yet to be fully priced into GOOGL stock?
Alphabet’s Ultimate Gambit: Ecosystem Entanglement
Lacking desktop OS dominance like Microsoft’s Windows, Google has gradually blurred the line between mobile and desktop by offering cloud-based services with a generous freemium. This process started with Gmail becoming synonymous with email, complemented by Google Drive, which then carries over to productivity suite Docs, Sheets, Slides, and Forms.
According to Statista, as of February 2025, Microsoft (NASDAQ:MSFT) Office 365 holds around 29% market share in this productivity and collaboration arena, while Google Workspace (previously Google Apps and G Suite) holds 45% dominance.
On top of that, Google’s Android completely dominated the global mobile OS market with 72% share. This foundation then anchors Alphabet’s ecosystem, funneling users into Google services.
Combined with mobile Android dominance via Play Store, Search, and Maps, alongside YouTube’s 2.5B+ users and Chrome, Google more than mitigates Microsoft’s lock in with Windows for enterprise and consumer ecosystems.
In the cloud infrastructure arena, Amazon (NASDAQ:AMZN) Web Services still holds 33% market share, ahead of Microsoft’s Azure at 20% and Google Cloud at 10% market share. And as Chrome and Google Workplace penetrated deeply into Windows OS, this makes Alphabet and Microsoft arch rivals:
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Alphabet sidesteps Microsoft by embedding Google services regardless of OS.
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Microsoft has its own stickiness with Windows-Copilot synergy, boosted by LinkedIn and Dynamics 365 for SaaS revenue.
According to Gartner Peer Insights, Google Workspace is neck and neck with Microsoft 365 when it comes to user ratings, at 4.6/5 vs 4.5/5 overall ratings respectively.
It is then understandable why both companies are in such a rush to pour billions into AI, as they look at this new service layer as the deciding factor that will deliver a permanent advantage.
For Microsoft, AI integrates Office, Azure and Windows, locking in enterprise customers. For Alphabet, AI makes stickier Workspace, YouTube and Search. Both companies are counting on the network effect coming from useful AI models.
But first, how does Alphabet plan to outcompete Azure?
Alphabet’s AI Foundation: Cloud Infrastructure
By transcending individual platforms, Alphabet built up strength for the AI era. At Google Cloud Next (LON:NXT) 2025, the company is now directly targeting enterprises with Cloud WAN, purportedly able to deliver up to 40% faster performance than traditional wide area network (WAN) solutions.
As AI apps require high throughput and low latency, Cloud WAN is again facilitating ecosystem entanglement by offering Cross-Cloud Interconnect between GCP, AWS, Azure and Oracle (NYSE:ORCL) Cloud Infrastructure (OCI).
For AI-driven capital expenditures (capex), Alphabet allotted $75 billion for 2025, the bulk of which will go to building cloud infrastructure.
When it comes to AI training and workload performance, Alphabet plans to launch its 7th gen Tensor Processing Unit (TPU), slated for launch in late 2025. Dubbed Ironwood, this TPU purportedly is 24x more performant than the world’s top supercomputer El Capitan using AMD’s EPYC CPUs and Instinct MI300A AI chips.
To improve cost-efficiency between user inputs and AI outputs, the company introduced Google Kubernetes Engine (GKE) inference, Pathways, and vLLM on TPUs support. Altogether, these innovations should increase AI workload throughput by 40%, cut server costs by up to 30%, and cut latency by up to 60%.
From the days of Google employees describing Bard (Gemini precursor) as “a pathological liar” to Gemini’s refusal to depict people of European descent in historical scenarios, Google’s AI model has come a long way.
According to the latest ArtificialAnalysis ranking, Gemini 2.5 Pro is now sandwiched between OpenAI’s o4-mini and o3, having 1 million context window and intelligence score of 68.
Similarly, Gemini 2.5 Pro is at the very top at performance-per-dollar metric, according to AI scientist Pierre Bongrand.
Many users have reported Gemini 2.5 Pro’s large leap in long context performance, coding and its multimodal outputs (audio and video). To compete with OpenAI Sora in the highly anticipated and disruptive video generation arena, Gemini has Veo 2 via Google AI Studio. Presently, Veo 2 is able to produce 8-second, 720p cinematic realism videos with impressive consistency.
With that said, the problem of confabulation, in which AI models conjure fake content to please users, is still a hard problem. Here, Gemini 2.5 Pro is neck and neck with Grok 3 Mini Beta.
Of course, for robust real-world use cases, AI confabulation would have to drop to near-zero. Even at simple tasks such as summarizing news, hallucination is feature-destroying, as evidenced by Apple’s cancellation of its AI-powered news headlines summaries.
Nonetheless, by the current rate of performance, it appears that Google is making all the right moves to best rivals.
Alphabet’s AI Star: Gemini 2.5 Pro
Two days before Alphabet’s Q1 2025 earnings report on Thursday, we informed investors that GOOGL stock poses an opportunity. At that time, GOOGL stock was priced at $150.59 per share. At press time, GOOGL shares are priced at $162.03.
This price level is still in line with the bottom price forecast of $160, per WSJ’s forecasting data. The average GOOGL price target is still a significant gainer, at $204.26 per share. The ceiling is holding at $250 per share, which could shift even higher based on greater Gemini advancements.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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