Alphabet’s AI Edge Survives Court Ruling, but Is There a Long-Term Risk?

Google parent Alphabet (GOOG 0.27%) (GOOGL 0.22%) faced a frightening challenge after its search engine business was declared an illegal monopoly last August. Since then, investor concern over the potential consequences dampened Alphabet stock’s performance.

That changed on Sept. 2, when a federal judge finally delivered the legal penalties, and they largely favored Alphabet. The news sent the company’s stock to a record high.

Even so, Alphabet didn’t escape unscathed. While the penalties pose no immediate threat, over the long run, the possibility exists for damage to its critical artificial intelligence (AI) business. Digging into the court ruling’s implications can reveal if the tech titan’s AI aspirations face long-term risk.

Image source: Getty Images.

How the court’s decision affects Alphabet’s AI ambitions

The Sept. 2 legal ruling bars Alphabet from signing exclusive contracts with partners such as Apple. Deals are still allowed, as long as exclusivity isn’t a component, so no immediate revenue impact is involved here.

But another legal stipulation mandates sharing some of Google’s search data with competitors. This is where AI comes in.

Artificial intelligence relies on massive troves of data to perform tasks accurately. The court’s decision arms Alphabet’s rivals with ammunition to improve their AI models.

That competition includes Microsoft, which battles Alphabet on several fronts, including search, digital advertising, cloud computing, and of course, AI. The court’s requirement would deliver Google’s data insights to Microsoft’s Bing search engine, and feed across all the areas where the two corporations compete. But where it can really provide value is in AI.

Microsoft incorporates AI models developed by ChatGPT creator OpenAI into its offerings, since it has a stake in the company. ChatGPT’s introduction of generative AI to the world is one of the key drivers that kicked off the current artificial intelligence frenzy. Adding Google data to the mix could strengthen both Microsoft and OpenAI’s tech.

In fact, the judge who delivered the Sept. 2 ruling, Amit Mehta, noted, “The emergence of GenAI changed the course of this case.”

Is Alphabet’s AI position at risk?

Alphabet has the option to appeal the court’s penalties, but even if it doesn’t, the tech conglomerate’s impressive use of AI to date could be enough to prevent erosion of its businesses.

For instance, new AI features introduced to its Google search engine boosted usage. This enabled Google search revenue to hit $54.2 billion in the second quarter, up 12% from 2024’s $48.5 billion.

Alphabet’s AI advancements helped Google maintain a search market share of 90% in August, compared to next-closest competitor Bing’s 4%. Even if Google’s data helps Bing gain share, the gap between the rivals is so huge, Bing is unlikely to make a meaningful dent in Google’s lead anytime soon.

AI contributed to growth in Alphabet’s cloud computing segment, Google Cloud, as well. The division is bringing AI-powered shopping capabilities to PayPal. Such customer adoption of AI drove Google Cloud’s Q2 sales to $13.6 billion, a whopping 32% year-over-year increase.

Should cloud competitors improve their AI with Google data, the difference would have to be significant to get Alphabet’s customers to switch. Google Cloud integrations aren’t easily unfurled, leading to high switching costs.

Beyond search and cloud computing, Alphabet has injected AI into YouTube, its Waymo robotaxi service, Gmail, and more.

Alphabet isn’t out of the woods yet

Overall, Alphabet dodged a bullet in the Google search antitrust case. The legal penalties could have been as far-ranging as a forced divestiture of its popular Chrome browser and Android mobile operating system.

Considering these worst-case scenarios, Alphabet got off pretty light, and the ruling’s impact to its business over the long term looks minimal. The conglomerate’s widespread use of AI across its operations gives it a solid lead against competitors who may benefit from access to Google data.

But the legal dangers aren’t over yet. Earlier this year, Alphabet lost a separate antitrust case directed against its advertising empire. The penalties in that case are yet to be determined. However, Google was slapped with a $3.5 billion antitrust fine by the European Union on Sept. 5 for violating rules designed to protect a competitive advertising marketplace.

Compared to the Google search case, this separate antitrust lawsuit poses a lower risk. That’s because it involves advertising tech related to the company’s Google network, which produced $7.35 billion in Q2 sales, a drop from the $7.44 billion generated in the previous year. By comparison, Google search accounted for $54.2 billion of Alphabet’s $96.4 billion in Q2 revenue.

So while Alphabet isn’t out of legal trouble yet, the biggest long-term risk to its business is behind it, as long as the conglomerate can continue pushing AI innovation across its operations.