The S&P 500 index is market-cap-weighted, meaning companies that do well slowly make up more of the index over time. In recent years, a group of prominent technology companies dubbed the “Magnificent Seven” have dominated headlines and increasingly influenced the broader market.
A research article by The Motley Fool notes that the Magnificent Seven stocks — Apple, Microsoft, Amazon, Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Facebook parent Meta Platforms, Nvidia, and Tesla — accounted for approximately 12.3% of the S&P 500 in 2015, but that had increased to 35.4% at the end of 2024.
Alphabet, in particular, has been an AI leader among the group, with multiple pieces of its business benefiting from growth opportunities in artificial intelligence (AI). But in recent weeks, market turbulence has knocked the stock down roughly 20% off its all-time high.
Should investors buy this dip, or should they avoid Alphabet? Here is what you need to know.
Digital advertising on Google Search has been Alphabet’s highly profitable core business for years. People worldwide use Google for roughly 90% of their internet searches. Some worry that large language models, like ChatGPT, could take search traffic away from Google Search because these models can summarize information in response to queries rather than simply present page links.
Alphabet has integrated its large language model and AI summaries into Google, but some fear this shift to AI models could reduce advertising revenue. Thus far, this isn’t apparent in the numbers. Google Search generated $42.6 billion in revenue in Q4 2022, right before ChatGPT became popular in early 2023. Google Search revenue was $54 billion in Q4 2024. In other words, revenue grew nearly 27% over two years. That doesn’t look like a business feeling pressure or disruption from AI.
That could still change, but it seems that Google Search’s demise due to AI is grossly exaggerated for now.
Meanwhile, Alphabet has multiple long-term growth catalysts centered around AI innovation.
Google Cloud is the world’s third-leading cloud computing platform — trailing No. 1 and No. 2 at about 12% of the market — and is poised to benefit from increased demand as businesses use AI applications through the cloud. Google Cloud’s Q4 2024 revenue was approximately $12 billion, a 30% increase year over year. Alphabet noted on the earnings call with analysts that capacity constraints have bottlenecked Google Cloud’s growth.