Image Source: Pixabay
 

Yesterday, Alphabet, aka Google (Nasdaq: GOOG), announced its second quarter results that soared past market expectations. Google is investing heavily in AI to address the evolving landscape.
 

Alphabet’s Financials

Alphabet’s revenue grew 14% to $96.4 billion, ahead of analyst estimates of $94 billion. EPS was also ahead at $2.20, compared with analyst estimates of $2.18.

Google’s advertising revenues came in at $71.34 billion with YouTube advertising revenues at $9.79 billion. The market was looking for YouTube revenues of $9.56 billion. Search segment revenues came in at $54.19 billion, compared with $52.85 billion expected by the market. Cloud computing revenues came in at $13.6 billion, compared with market expectations of $13.11 billion. Its Other Bets segment brought in $373 million.
 

Alphabet’s AI Search Strategy

According to a recent report, as of June 2025, about 5.6% of U.S. desktop search traffic is directed toward AI tools like ChatGPT and Perplexity, which has more than doubled from a year ago. As more and more users shift toward AI-based engines, there is a growing concern that the process will redefine the discovery and search process for the users. Features like Google’s own AI overview, are forcing websites to evolve to serve primarily as data sources for bots that feed LLMs, instead of destinations for consumers. Click through rates are dropping as well.

According to another research, 80% of consumers now resolve 40% of their online search queries without clicking any links. The amount of time that consumers worldwide spent on traditional search apps and websites declined 3% from April 2024 to April 2025 as well. All these metrics are expected to impact Google’s search revenues. Google is putting together its AI strategy to improve monetization and adapt to this rapidly evolving environment.

Last year, buoyed by the growing use of AI tools, Alphabet had launched its own AI Overview section on top of Google’s search results. The feature has seen strong adoption. AI Overviews had 1.5 billion users per month in the first quarter of the year.

Earlier this summer, it announced the launch of a new subscription tier, AI Ultra, that offers access to Google’s AI features at a price of $249.99 a month. Priced higher than ChatGPT’s most expensive version, AI Ultra includes early access features to experimental products, a 30-terabyte storage, access to Gemini along with access to Gemini’s DeepThink mode, the AI-based filmmaking tool, Flow and a note-to-podcast tool, Notebook LM.

Additionally, Google is also investing in AI-based hardware offerings and entered into a $150 million partnership with Warby Parker for the development of smart glasses. The two companies are targeting to release these glasses by next year. Earlier this month, Google announced plans to hire Varun Mohan, co-founder and CEO of artificial intelligence coding startup Windsurf, along with other senior R&D employees. While Google is not investing in Windsurf, it has signed a non-exclusive license to certain Windsurf technology. The deal, including the compensation, is estimated at $2.4 billion. Prior to agreeing to join Google, the team from Windsurf was being courted by OpenAI for a $3 billion transaction.

For now, Google is not worried about the impact of AI on its search revenue. In a recent report, it maintained how AI Overview was generating the same amount of advertising revenue as traditional search results. Google is also expanding AI Overview to other languages. Google believes that AI is leading to a change in ad placement options for marketers and a need for search engines to address more complex queries. Google Search is now focusing on identifying commercial intent within complex queries through what it refers to as “faceted” searches. These are complex questions that contain multiple sub-questions, some of which have commercial intent. While analysts may be worried about AI impacting Google’s search revenue, Google is fairly convinced that it won’t be the case.

Google’s stock is trading at $191.51 with a market capitalization of $2.31 trillion. It hit a 52-week high of $208.7 in January this year and a 52-week low of $142.66 in March this year.

More By This Author:

Is Netflix Going To Do AI Generated Content?
Cloud Stocks: ASML Faces A Tough Road Ahead
Analysis of CrowdStrike’s Adaptive Shield Acquisition