Alphabet’s Shares Rise After Google Showcases AI Innovations at I/O Conference

Google unveiled an array of AI-powered innovations at its annual I/O developer conference, including a new $249.99 monthly subscription tier for power users, smart glasses partnerships, and the rollout of “AI Mode” to all U.S. users of its search engine. Alphabet Inc. (NASDAQ: GOOG) shares jumped 3.47% in Wednesday morning trading as investors responded positively to the tech giant’s aggressive AI strategy.

Google Shares Bold AI Strategy with New Features and Partnerships

Google’s annual I/O developer conference in Mountain View, California, revealed the company’s comprehensive approach to integrating AI across its product ecosystem. CEO Sundar Pichai announced that the Gemini AI assistant now boasts over 400 million monthly active users, highlighting the rapid adoption of Google’s AI tools.

Among the key announcements was the nationwide rollout of “AI Mode” for Google Search, a feature previously limited to test users, which now allows all U.S. users to switch from traditional search results to AI-generated answers for complex queries. This represents Google’s most significant transformation of its core search product in years as it works to counter competitive pressure from AI chatbots.

The company also unveiled the “AI Ultra Plan,” a premium subscription priced at $249.99 per month, targeting power users with higher usage limits and early access to experimental tools. These include Project Mariner, a browser extension that can automate keystrokes and mouse clicks, and Deep Think, an enhanced version of its top-tier Gemini model designed for complex reasoning tasks. The subscription also includes 30 terabytes of cloud storage and an ad-free YouTube experience.

In a notable return to smart eyewear, Google demonstrated new glasses powered by its Android XR software, with features including real-time translation displayed through the frames’ lenses. The company announced partnerships with fashion-forward eyewear brands Warby Parker and Gentle Monster to develop consumer-friendly smart glasses, and revealed plans to launch an XR headset developed with Samsung later this year.

Other significant announcements included the Veo 3 AI model for generating realistic video and audio, and enhancements to Project Astra, Google’s “universal AI agent” testing ground, which demonstrated capabilities such as automatically adding events to a user’s calendar by simply pointing a smartphone camera at a written invitation.

“Over and over, we’ve been able to deliver the best models at the most effective price point,” Pichai told attendees, emphasizing the company’s commitment to cost-effective AI implementation even as investment in AI accounts for the majority of Alphabet’s forecasted $75 billion in capital expenditures this year.

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GOOG Stock Surges Despite Search Competition Concerns

As of 10:48:41 AM EDT on Wednesday, May 21, 2025, Alphabet shares were trading at $171.06, up $5.74 or 3.47% from the previous close of $165.32. The stock is trading significantly above its day’s range of $164.91 to $171.54, reflecting strong investor optimism following the I/O conference announcements.

Despite the positive market reaction, Alphabet faces mounting pressure in its core search business. Earlier this month, the company lost approximately $150 billion in market value in a single day after an Apple executive testified during an antitrust case that AI offerings had caused a decline in searches on Apple’s Safari browser for the first time.

Some analysts have subsequently reassessed Google’s dominant position, with one estimate suggesting its search market share could fall below 50% from around 90% within five years as consumers increasingly turn to AI chatbots instead of traditional search engines.

However, Google appears to be repositioning its search business for the AI era. Robby Stein, an executive on the search team, suggested in an interview that AI-enhanced search could create “new opportunities to create hyper-relevant, useful advertising,” which remains the primary source of Google’s revenue.

From a valuation perspective, Alphabet currently trades at a forward P/E ratio of 17.57, significantly lower than many of its tech peers despite its strong position in the AI race. The company’s market capitalization stands at approximately $2.07 trillion, with trailing revenue of $359.71 billion and a healthy profit margin of 30.86%. Wall Street remains largely bullish on the stock, with an average price target of $199.31, suggesting potential upside of about 16% from current levels.

Year-to-date, GOOG shares have underperformed the broader market, down 10.15% compared to the S&P 500’s 0.37% gain. However, the stock has delivered impressive long-term returns, up 144.84% over the past five years compared to the S&P 500’s 100.22% rise during the same period.

This recent underperformance, combined with the company’s aggressive AI investments and strong financial position (including $95.33 billion in cash), has led some analysts to view Alphabet as potentially undervalued among major AI players.

Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.