Google Has Become The AI Arms Dealer, But One Thing Is Holding Back Its Stock

AlphabetGOOGL

has quietly become AI’s kingpin — hooking rivals on the compute and models they can’t produce themselves. The search giant’s stock finally touched 52-week highs on Monday as investors realized Alphabet isn’t just competing in AI; it’s powering the ecosystem that even its fiercest competitors depend on.

The AI rent collector: While OpenAI and others grab headlines, Google’s raking in serious cash by becoming the infrastructure backbone for firms that need computing muscle. MetaMETA

just signed a six-year cloud deal worth over $10B to tap into Google’s servers and storage capabilities — while OpenAI, despite competing directly with Google’s AI models, said it would use the tech titan’s Google Cloud infrastructure to meet growing computational demands.

• Even AppleAAPL
  , which has stumbled badly with its AI rollout, is now exploring whether Google’s Gemini models could rescue its struggling Siri assistant.
• The timing couldn’t be better, as Apple’s AI issues have given Google and Android licensees what CCS Insight calls a “window of opportunity” to capture users looking for advanced AI features.

Pixel as a Trojan Horse

Last week, Google’s Pixel 10 launch showcased features like “Magic Cue,” which searches across apps, and “Camera Coach” for photography tips — but these phones aren’t meant to outsell iPhones. With just 0.3% global market share compared to Samsung’s 23%, Pixels serve more as AI showcases that Android partners like Samsung and Xiaomi can adopt, creating what Counterpoint Research calls a “flywheel effect” of adoption and feedback. Through Android, Google maintains a direct line to 3B+ devices worldwide — a reach that could ease concerns its AI might cannibalize its core advertising income, which now makes up a smaller share of revenue.

• Google’s ad income as a percentage of total revenue has declined from 87% in 2017 to 75% in 2024, while cloud revenues have grown from 4% to 12% over the same time period.
• At a ~22x price-to-earnings ratio, the stock trades at a discount to many AI competitors — despite owning the infrastructure that powers much of the industry. And there’s a reason why.

Regulatory gut check: The elephant in Google’s boardroom remains the Justice Department’s push to force a Chrome sale and unwind its search monopoly. Judge Amit Mehta found that Google’s $26B in annual payments to companies like Apple and Samsung illegally stifled competition, and remedies could arrive any day. For investors, the biggest fear is that Google ends up like Microsoft back in the 2000s — a decade where the business stays strong, but the stock goes nowhere.