Is Alphabet's Core Search Business in Trouble? Looking Past the Headline Revenue Growth Provides a Clear Answer.

Alphabet's core search business may be facing challenges as its revenue growth has slowed, but there are several factors to consider beyond the headline figures. While Google Search revenue growth has decelerated to 12% year-over-year, search query volume has reached the highest level in the last five years. Users are engaging with Search in more detailed and personalized ways, including text, voice, photos, and other uploads.

This shift towards multimodal queries could provide Alphabet with valuable data for better ad targeting. The company has already started monetizing this increased engagement by displaying ads in AI Overviews and AI Mode, with user research indicating that people find these ads relevant and comfortable. Additionally, Alphabet is expanding AI features directly within AI Mode, which has shown success in its Gemini app used by 1 billion people.

These agentic AI features could lead to further monetization opportunities, such as helping users book reservations, fill out forms, schedule appointments, or make purchases. While the slowdown in revenue growth is worth monitoring, the outlook for Alphabet's search business remains strong. In fact, Google Cloud Platform, which has seen more than double the revenue growth and strong margin expansion, is projected to become the largest driver of operating income growth by 2027.

The current stock price may present a buying opportunity for patient investors, trading at less than 19 times forward earnings expectations.