Google investors have high hopes as stock price soars the most in 20 years

alphabet There are high hurdles to clear when announcing Wednesday’s financial results.

The company’s stock price soared 38% in the third quarter, its best quarterly performance in 20 years. The rally continues, rising 11% so far in October and closing at a record high on Monday.

With sales growth hovering in the low teens recently and expected to reach 12% next year, investors are recalibrating their expectations after witnessing rapid growth in the years ahead before a slowdown in 2022. Much of the recent optimism has centered on Google’s rising position in the artificial intelligence race.

However, the biggest driver of the stock’s rise in the third quarter was due to Google’s relative weakness in AI compared to its position in online advertising.

Alphabet stock soared in early September after Google avoided the worst-case scenario in a search antitrust lawsuit. In a relief ruling last month, U.S. District Judge Amit Mehta ruled that Google cannot be forced to sell its Chrome browser, but it must share data with competitors, following the government’s victory in a lawsuit against the company last year.

Mehta said the rise of AI services from companies such as OpenAI is creating a lot of new competition in the search space. Supporting his claim, OpenAI last week announced ChatGPT Atlas, an AI-powered browser that can directly challenge Chrome.

Investors quickly welcomed Mehta’s ruling, but Google must now prove that it is a force in AI, which serves as a growth engine for the technology sector. Google’s cloud division is benefiting from the AI ​​boom, as companies look to technology to run language models at scale and scale workloads. And Google is investing heavily in Gemini and its family of AI models, products, and services.

Analysts at KeyBanc Capital Markets raised their price target on Alphabet from $265 to $300 over the weekend, predicting that third-quarter results will “show faster product velocity driving momentum for Waymo’s search, cloud and self-driving car businesses.”

Analysts wrote that the stock’s jump was due to “a combination of a better-than-expected DOJ Search relief trial and stronger signs of AI progress across its business units.”

Alphabet is scheduled to report results along with its rivals after the bell on Wednesday. microsoft and meta. apple and Amazon Reported the next day.

Wall Street expects sales to rise 13% to $99.89 billion and earnings per share to be $2.26, according to LSEG.

Regarding Google’s position on AI, some analysts believe there is reason to be concerned.

Bernstein analysts wrote last month after the bailout that Mehta’s comments about generative AI competing with search could be a red flag for investors.

“The bite is not fatal, but it still stings,” analysts rated Alphabet with a Hold rating wrote.

Mehta spent about 30 pages of his 226-page application explaining generative AI and the market that exists today. He said the sector is “intensely competitive” and wrote that there are “numerous new market entrants” with access to “large amounts of capital.”

According to September data from StatCounter, ChatGPT accounts for approximately 81% of the global AI chatbot market. According to the company, Perplexity came in second with 11%, followed by Microsoft Copilot with 4.1% and Gemini with 2.8%.

But Google is actively promoting Gemini as more than just a ChatGPT competitor, leveraging its strengths in different markets for distribution.

Earlier this month, the company launched Gemini Enterprise, which targets enterprise customers with agents to perform specific work tasks. Google announced in September that it would be rolling out Gemini for Chrome to Mac and Windows users and mobile devices in the United States. This will allow users to have Gemini help them with a variety of tasks, such as understanding the content of a particular web page, working across multiple tabs, or even scheduling a meeting or searching for a YouTube video within a single tab.

Google CEO Sundar Pichai said this month: sales force At the Dreamforce conference, Gemini 3, the latest version of the company’s AI model, is scheduled to be released this year.

Mizuho analysts said in a report on internet markets last week that in more than 100 recent conversations with investors, “competitive risks from OpenAI in the internet landscape as a whole, and specifically at Google, have been the top topic of conversation.”

Still, they said they believe “competitive concerns are likely to recede as we refocus on fundamentals with profits.” For Google, they write, “the impending rollout of Gemini 3 could tilt Alphabet stock sentiment even further toward AI winners, at least in the near term.”

Even if the rescue resolution is generally welcomed by investors, the company will have to make some concessions, according to the judge’s ruling. Most notably, Google must provide certain search and user data to “eligible competitors.”

Determining which companies fall into that category will be the job of a technology oversight committee, although a date has not yet been announced.

Services such as DuckDuckGo and Microsoft Bing may also benefit, and may have improved access to some of Google’s search index data under certain license agreements.

Mehta wrote that the data-sharing remedy “will help close the significant advantage Google has in answering long-tail queries, thereby improving the quality of its products and their appeal to new users.”

Baird analysts wrote that they expect a “moderate” impact on Google because the company won’t have to share data with generative AI competitors like Perplexity and OpenAI. That “would have been more problematic,” Baird analysts wrote.

Google, which plans to appeal the ruling, declined to comment, but pointed to an earlier blog post about the judge’s decision.

The company said it was “concerned about how these requirements impact our users and their privacy and are considering our decisions carefully.”

Abiel Garcia, a former deputy attorney general at the California Department of Justice who practices antitrust law, said he doesn’t think the ruling will affect how Google operates.

“Some of the data may be useful at the end of a competitor’s product, but I don’t think this will change anything significantly,” Garcia, now a partner at Kesselman Brantley & Stockinge, told CNBC. “This is like encouraging Google to roll the dice.”

WATCH: Google’s search empire under attack