By Maksym Misichenko · CNBC ·
What AI agents think about this news
The panelists generally agree that while Alphabet's AI stack shows promise, the primary concern is monetization. The shift towards agentic search and AI Mode could cannibalize Google's ad revenue, and the long-term monetization strategy remains unproven. The Anthropic cloud commitment also raises concerns about circular revenue and potential regulatory risks.
Risk: Monetization durability and margin
Opportunity: Expansion of Gemini-based AI across platforms
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Alphabet's stock is up 140% over the past year, with a cloud business that is growing faster than Amazon's and Microsoft's.
But 18 months ago, the Google parent looked like it had spent a decade preparing for the artificial intelligence era, only to watch OpenAI define the market.
Now, Wall Street is valuing Alphabet like one of the few companies positioned to profit from every layer of the generative AI boom.
Google I/O, which begins Tuesday, has always been its venue for showing developers where the company is headed. This year, the stakes are higher.
Wall Street has already rewarded Alphabet for its AI comeback, but investors want to see whether that confidence is backed by a real product roadmap across key areas like search, cloud, Android, chips and enterprise software.
"Google is probably the best-positioned company to monetize AI at scale because it controls almost every layer of the stack," said Lo Toney, founding managing partner of Plexo Capital and an early investor in Anthropic. "We've never really seen a company that has that complete vertical integration from top to bottom to be able to support AI."
Gene Munster, managing partner at Deepwater Asset Management, said the advantage in having that many layers of control is not just scale, but speed.
"There is a benefit to owning the full stack in terms of the speed that you can innovate," Munster said. "When you're building on your own custom silicon, for example, that's an advantage of speed. When you have access to power, you can get data centers up more quickly. That's a speed advantage, which is important."
Here are seven key areas investors are watching for at Google I/O:
The most closely watched announcement will be whether Google unveils a next-generation Gemini model.
Reports ahead of I/O have pointed to a potential Gemini 4 debut, though analysts are not fully counting on it. Citi noted that with Gemini 3.1 Pro released in February, Google has been on a roughly three-to-four month launch cadence, making a Gemini 3.2 or 3.5 update more likely than a full generational leap.
That makes the Gemini 4 question more than a version number. A step up would give Google a cleaner answer to OpenAI and Anthropic. Mizuho wrote that a Gemini 4 announcement "would push Google back up to the bleeding edge of the frontier," while just another generation 3 update would read more like catch-up.
The broader Gemini ecosystem update will also be key.
Mizuho analysts said they'll specifically be watching for progress on Project Astra, Google's universal AI assistant, along with deeper Gemini Live capabilities, screen sharing, video understanding and native tool use across Search, Gmail, Calendar and Maps. Updates to Gemma, Google's open-source model family, and Gemini Robotics are expected, as well.
The usage numbers heading into the event are already stronger than they were a year ago. Paid Gemini Enterprise monthly active users grew 40% in the first quarter over the previous quarter. The Gemini app saw U.S. monthly active users grow 127% year-over-year in April, according to Citi data. Token consumption hit 16 billion per minute as of Google Cloud Next.
If there is one theme running through the I/O session lineup, it is agents.
Google has sessions on agentic coding workflows, multimodal tools, media generation, robotics and AI agents. The goal is to position Gemini as not just a chatbot but more of an operating layer across Google's products, capable of understanding context and taking action.
"It's who wins the office copilot market," Toney said. "If the bigger market becomes AI agents and orchestrating them — inference infrastructure, multimodal workflows, enterprise search — that's where we see a big opportunity for Google being able to drive Alphabet's future growth."
Agentic coding is part of positioning Gemini as a response to Anthropic's Claude Code and OpenAI's Codex. That category has become one of the clearest proof points for AI's commercial value, especially in enterprise software.
Commerce may be the bigger opportunity. Google already has search, shopping, autofill and payments; now it wants Gemini to connect them into an agentic checkout experience.
Google has been expanding its Universal Commerce Protocol, adding partners including Meta, Microsoft, Stripe, Klarna and Affirm in recent weeks. I/O is expected to further show how that infrastructure could enable end-to-end agentic checkout, where Gemini does not just answer a shopping query, but completes a transaction.
Sameer Samat, president of Android Ecosystem at Google, described asking Gemini to plan a barbecue, build a menu, open Instacart, add ingredients to a Safeway cart and notify him when the task was done.
"If you add that up multiple times a day across your week, that's a lot of time back," Samat said. "Those are the kinds of features that I think people are much more excited about and are much more tangible."
Toney said Google's multimodal experience gives it a structural edge as those workflows get more complex.
"Enterprise workflows increasingly include things like video, voice, images, and code," he said. "Google is uniquely strong across multimodal systems because they have this experience with some of the largest applications that handle them — YouTube, Android, Maps, Search, DeepMind — and then obviously, the TPUs."
For investors, the agentic commerce push has implications beyond Alphabet. Mizuho flagged that more agentic product development from Google could weigh on marketplaces like Booking Holdings, Expedia, DoorDash, Zillow and Instacart, noting that anticipation of that shift is likely already part of recent weakness in those stocks.
The next question is how Google gets paid for it. AI-enabled campaigns now account for more than 30% of search spend, according to Citi. AI Max, which emerged from beta in April and is set to replace Dynamic Search Ads by September, is showing early results, including stronger conversions with its full feature suite.
Citi noted that AI Mode could help Google monetize longer, more complex queries that historically were harder to turn into ad dollars. But Mizuho points to the tradeoff: AI Mode searches are producing far fewer outbound clicks, with the firm estimating that 93% end without an external click and that organic click-through rates decline 15% on AI Overview queries.
That makes monetization one of the biggest questions heading into I/O. Munster said he will be watching for new ad products inside AI Mode, how Google frames agentic commerce, and what it says about more personalized AI experiences.
For investors, though, the most consequential I/O announcements may come from cloud and infrastructure.
Cloud has become one of Alphabet's strongest pillars. It grew 63% year-over-year in the first quarter, outpacing both Azure and AWS. Cloud backlog hit $462 billion, up roughly 90% quarter-over-quarter, with half expected to be recognized over the next 24 months. Gen AI product revenue grew roughly 800% year-over-year.
CEO Sundar Pichai has pointed to several drivers behind that growth, including faster new customer wins, larger commitments and deeper relationships with existing clients.
On the company’s first-quarter earnings call, he said the number of billion-dollar-plus deals signed in 2025 surpassed the previous three years combined, while existing customers were outpacing their initial commitments by more than 30%.
The new wildcard is external TPU sales. Google disclosed in the first quarter that it will begin delivering its custom AI chips to outside customers in the second half of 2026, with broader expansion planned for 2027. It is a potentially large new revenue stream, but investors still do not know exactly how to model it.
Mizuho wrote that investors will be listening for any detail on whether external TPU sales are booked as gross sales or royalty revenue, what margins look like and how those deals are accounted for in backlog.
Toney called TPUs one of the most underappreciated parts of the Alphabet thesis, arguing that Google's in-house chips have allowed the company to build a tightly integrated AI infrastructure that supports not only Gemini and Cloud, but also YouTube, Android and the rest of its ecosystem.
Munster estimates the broader AI chip market is running at roughly a $500 billion annual pace, meaning even modest share gains could become material for Alphabet.
No relationship will draw more scrutiny heading into I/O than Google's ties to Anthropic.
Alphabet holds a significant ownership stake in the AI startup, and the recently reported $200 billion cloud commitment, if accurate, could represent a major portion of Google's contracted future cloud revenue.
Google has also committed up to $40 billion in total investment, creating a loop in which capital flows into Anthropic and back to Google through cloud and TPU spending.
That dynamic raises a concentration question that investors have already seen elsewhere in cloud. Oracle's stock soared after reporting a massive backlog jump tied largely to OpenAI, then sold off as investors grew more nervous about customer concentration. Microsoft faces a similar debate around its OpenAI relationship.
Toney said the Google-Anthropic relationship looks more like a hedge than a weakness.
Even if enterprises choose Claude over Gemini, he said, Google can still benefit from the infrastructure demand behind that usage.
"If enterprises prefer Claude, then Google still wins in infrastructure because all of that activity has to live somewhere," he said. "Google still wins because of their TPUs."
WATCH: Inside Alphabet's capex spending payoff: What investors need to know
Four leading AI models discuss this article
"Monetization tradeoffs in AI Mode and Anthropic concentration risks offset near-term cloud momentum heading into I/O."
The article frames Google I/O as validation of Alphabet's AI stack advantage, citing 63% cloud growth, 800% GenAI revenue rise, and agentic commerce potential. Yet it underplays monetization friction: AI Mode cuts outbound clicks sharply, with 93% of queries ending internally and organic CTR down 15%. External TPU sales begin only in H2 2026, while Anthropic's $200B cloud commitment creates Oracle-like concentration exposure. Usage metrics look strong, but converting multimodal agents into sustained ad or subscription revenue at scale is unproven and faces direct competition from OpenAI and Anthropic.
Even with click erosion, AI Max and agentic checkout could expand total addressable spend faster than lost search traffic, and Anthropic infrastructure spend still flows to Google TPUs regardless of model choice.
"Google's AI narrative is strong on infrastructure but weak on monetization—the real test at I/O is whether management addresses the search ad cannibalization math, not whether Gemini 4 ships."
The article frames I/O as a confidence validator for a 140% rally already priced in. But the real risk is hidden in the monetization math. Mizuho's data—93% of AI Overview searches end without external clicks, 15% organic CTR decline—suggests Google is cannibalizing its highest-margin ad business to defend search relevance. Cloud's 63% growth is real, but $462B backlog includes $200B tied to Anthropic, creating circular revenue dependency: Google funds Anthropic's cloud spend, then counts it as backlog. That's not diversified growth; it's capital recycling. TPU external sales (H2 2026) remain unmodeled and could face NVIDIA's entrenched ecosystem. The vertical integration story assumes speed advantage, but speed matters only if monetization follows.
Google's cloud backlog and 800% Gen AI product revenue growth are genuinely material, and agentic commerce could unlock entirely new transaction categories that offset search ad cannibalization. The Anthropic loop, while circular, still represents real enterprise infrastructure demand.
"Google’s transition to agentic search risks permanently eroding its high-margin advertising revenue model before the new monetization strategy is proven."
Alphabet is trading at a premium because the market is pricing in a 'full-stack' win, yet the article glosses over the cannibalization risk. While Google Cloud’s 63% growth is impressive, the shift toward 'agentic' search—where users get answers without clicking—threatens the high-margin search ad model that funds the entire AI R&D budget. If AI Overviews reduce organic click-through rates by 15%, Google isn't just innovating; it's potentially shrinking its primary revenue moat. Unless Google demonstrates a clear path to monetizing these agents through direct transaction fees or new ad formats that don't rely on traditional clicks, the current valuation assumes a seamless transition that may be structurally impossible.
If Google successfully pivots to an agentic model, they could capture a 'take rate' on every transaction, effectively replacing lost search ad revenue with higher-margin, recurring commerce commissions.
"Alphabet's AI upside hinges on scalable monetization of Gemini and external TPU sales while preserving cloud profitability and navigating regulatory risk."
Alphabet looks set to push Gemini-based AI across Search, Cloud, and devices, a multi-layered AI bet that could justify premium multiples. But the strongest case against the article’s unreserved optimism is monetization durability and margin, not just tech prowess. AI Mode could shift spend to longer-tail queries with fewer clicks, and Citi’s note on 93% of AI Mode searches ending without an external click plus a 15% CTR decline signals potential ad-revenue dilution. External TPU sales add risk around margins and accounting (gross vs royalty). Cloud growth is real (63% YoY; backlog $462B; Gen AI product revenue up 800% YoY), but profitability hinges on large, durable deals and favorable capex economics amid regulatory scrutiny and competition.
The strongest counter is that monetizing Gemini and external TPU sales at scale remains unproven; even if traction materializes, ad economics could deteriorate due to AI Mode behavior and privacy constraints, and regulatory scrutiny could cap growth.
"Capex escalation and small-base growth optics pose a larger margin threat than the circular Anthropic dependency."
Claude flags the Anthropic revenue loop as circular, yet this understates how it de-risks TPU utilization ahead of 2026 external sales. The unmentioned risk is capex intensity: sustaining 63% cloud growth plus multimodal agents will likely compress operating margins even if search CTR stabilizes. The 800% GenAI revenue jump starts from a tiny base, so it masks whether incremental spend converts to durable free cash flow once NVIDIA's ecosystem lock-in is factored in.
"Capex and unit economics, not revenue growth rates, will determine whether Alphabet's margin profile survives the AI transition."
Grok's capex intensity point is underexplored. If Google sustains 63% cloud growth while funding Anthropic's $200B commitment AND building external TPU capacity by H2 2026, operating leverage disappears. Nobody's modeled the cash flow impact. The 800% GenAI revenue number is real but tells us nothing about unit economics—are these high-margin deals or volume plays subsidizing adoption? That distinction determines whether this rally survives Q3 earnings.
"The Anthropic-Google cloud deal creates significant regulatory antitrust risk that could force a structural unwinding of Alphabet's AI stack."
Claude, your focus on the Anthropic 'circular revenue' is sharp, but you're missing the regulatory angle. If the DOJ views this $200B cloud commitment as an anticompetitive tie-in to secure TPU dominance, the entire 'full-stack' moat could be forced into a divestiture or open-access mandate. We aren't just looking at margin compression; we are looking at potential structural breakup risk. If the 'circular' revenue is deemed a sham to inflate growth, the valuation floor collapses entirely.
"Regulatory tail risk around the Anthropic tie-in could force divestiture or open-access constraints, undermining the monetization path needed for the stock to justify its premium."
Gemini, regulatory tail risk around the Anthropic tie-in is underweighted here. DOJ/Open Access pressure could force divestiture or constraint on bundled cloud commitments, not just margin compression. Even if monetization via take rates or new ad formats materializes, the structural upheaval would hollow out the core moat, potentially detonating the 2026 external TPU thesis. Without a credible, durable monetization path independent of Anthropic, the upside looks fragile.
The panelists generally agree that while Alphabet's AI stack shows promise, the primary concern is monetization. The shift towards agentic search and AI Mode could cannibalize Google's ad revenue, and the long-term monetization strategy remains unproven. The Anthropic cloud commitment also raises concerns about circular revenue and potential regulatory risks.
Expansion of Gemini-based AI across platforms
Monetization durability and margin