Alphabet's Business Is Booming, but There Could Be Trouble Ahead for the Stock

Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) has been a dominant force in the ad market for years, thanks to its incredibly popular Google Search engine. But with the emergence of artificial intelligence (AI) and chatbots, the company faces an uncertain future, and a recent antitrust ruling complicates matters even further for investors.

The good news, however, is that the company is still performing exceptionally well and the stock is having a great year, up around 29% heading into trading on Tuesday. And it's still one of the more modestly valued tech stocks right now.

Is Alphabet a good stock, or is there too much risk surrounding the business for it to be safe long-term investment?

Alphabet blew past expectations in Q3

For all the concerns relating to the business of late, Alphabet's operations looked more than fine when it reported its latest earnings numbers in October. In the most recent quarter, which ended Sept. 30, the company delivered some outstanding numbers, with revenue for the period rising by 15% to $88.3 billion and beating analyst expectations of $86.3 billion. And its per-share profit of $2.12 cleared Wall Street's forecast of $1.85 with ease.

The company's operations look solid, with Alphabet using AI to enhance its offerings for customers. Based on its recent results, it certainly doesn't look like the company is facing any serious headwinds or adversity.

But a company's quarterly earnings report only gives a small snapshot into how it's doing. And despite Alphabet's strong performance, investors should remain cautious with the tech stock as it faces some considerable risks.

Why Alphabet may endure a tougher year in 2025

The big unknown about Alphabet these days is its antitrust case. A judge ruled in August that its search business was a monopoly, and what effect that finding will have on the company remains to be determined.

One possible remedy may involve the breakup of the business. While that's a drastic measure, it's a potential scenario investors shouldn't ignore.

Regulators may also impose restrictions that could affect Google's agreements and the dominance it has in search. Depending on what regulators decide, there could be significant ramifications for Alphabet's business and the stock.

But even if regulators don't break up the company or put restrictive measures on its search business or related agreements, Alphabet may still face other challenges next year. As other tech giants ramp up their AI and offer more competitive solutions to search, Google's share of the U.S. search ad market could diminish and fall to under 50% next year, according to estimates from eMarketer.

That would be a monumental development because it would be the first time in more than a decade that Google has less than half of the U.S. search ad market. Not only would that potentially result in a sizable drop in the company's ad revenue, but it could also affect the growth expectations that investors and analysts have for the business over the long run.

Is the stock worth buying today?

Alphabet looks like it could be a cheap stock since it trades at just 24 times its trailing earnings, which is nowhere near the average stock in the Technology Select Sector SPDR Fund, which trades at more than 41 times its profits.

But given the risks that come with owning the stock, investors should demand a discount for the uncertainty ahead. Google's search business is such a key part of Alphabet's operations that should it continue to lose market share next year, that could lead to a significant sell-off.

While the company is still doing well right now, investors should always consider the long-term picture. With potentially more competition in search ads, Google may lose the advantage it has enjoyed for many years, and which has made it such a compelling growth stock.

Given its modest valuation, it could be worth buying the stock at its current price, but this isn't a suitable option for risk-averse investors. The safer decision would be to take a wait-and-see approach. It's still far too early to tell what the impact of greater competition will have on Alphabet's top and bottom lines, and what the fallout will be from the antitrust case.