Why Alphabet (GOOGL) Stock Is Soaring: Tariff Relief Meets AI Dominance

Alphabet's (NASDAQ: GOOGL) stock surged today as investors priced in twin tailwinds: the delayed EU tariffs easing cost pressures and groundbreaking AI advancements solidifying its leadership in search and enterprise tech. With Citi analysts reaffirming a $200 price target—a 22% upside from current levels—the moment is ripe to capitalize on Alphabet's undervalued AI growth engine.

The Tariff Truce: A Breathing Room for Innovation

The EU's decision to postpone tariffs until July 2025 removes an immediate overhang on Alphabet's supply chain costs. While the tech giant isn't directly targeted by the tariffs, the delay alleviates broader industry uncertainty, particularly in semiconductors and data center components. reveal a 80% YoY surge to $17.2 billion in Q1 2025, driven by AI infrastructure and subsea cables. This spending, once at risk of disruption, now fuels Alphabet's AI ambitions without the fear of retaliatory EU penalties.

Historically, such periods of high CapEx growth have yielded mixed results. A backtest of Alphabet's performance when quarterly CapEx rose over 50% YoY showed an average return of 1.11% over 60 trading days, though with a maximum drawdown of -31.68%, underscoring volatility even during growth cycles. While the current tailwinds are compelling, investors should temper expectations given these historical returns and risk metrics.

The reprieve also allows Alphabet to pivot fully toward growth. Analysts estimate that delayed tariffs could save Alphabet $500 million annually in avoided compliance and logistics costs, freeing cash to fund projects like its Agentic platform (a unified AI interface across devices) and partnerships with Warby Parker on AI-enabled smart glasses.

AI Mode and Gemini: The Next-Gen Search Monopoly

Alphabet's AI innovations are rewriting the rules of search and enterprise tech. The Gemini App, with 400 million monthly active users (up from 350 million in March), is now the fastest-growing AI tool in history. Its integration into Google's AI Mode—a chatbot-driven search interface—has boosted query volume by 15% in Q2, according to internal data. Meanwhile, AI Overviews, a Gemini-powered feature that summarizes complex topics in seconds, has reduced bounce rates by 9% on Google Search.

The stakes are existential. Citi notes that Alphabet's core Search & Other business trades at just 9.5x 2026 EBIT, despite its 35% global ad market dominance and the $2.5 billion annual run rate from Google Cloud. Competitors like ChatGPT's search integrations pose threats, but Alphabet's AI Ultra subscription (launching Q3 2025) adds a $15/month revenue stream targeting 100 million users by year-end—a $1.8 billion opportunity.

Citi's $200 Price Target: The Undervalued AI Giant

Citi's bullish stance hinges on two pillars: Alphabet's AI-driven revenue diversification and its $110 billion cash war chest. The $200 target (within a $160-$240 range) assumes:
- 14% annual revenue growth through 2027, fueled by cloud, ads, and AI subscriptions.
- A 20% upside from underappreciated assets like Waymo (autonomous driving) and Verily (healthcare AI).
- A P/E multiple expansion to 25x from today's 20x, reflecting stabilized geopolitical risks.

Critics cite risks: Apple's potential to embed rival AI search engines into Safari, or EU antitrust fines under the Digital Markets Act (DMA). Yet Citi argues these are priced in. The stock's 9% YTD decline has created a “buy the dip” opportunity, with Alphabet's AI adoption metrics—like Gemini's 90% user retention rate—proving its tech's staying power.

Act Now: The Confluence of Tailwinds

Today's Alphabet is a paradox: undervalued yet unstoppable. The tariff delay buys time to scale AI, while its product cadence—smart glasses, enterprise AI tools, and consumer apps—ensures dominance in a $500 billion AI market. With the stock trading at a 5-year low relative to its AI revenue trajectory, this is a decisive moment for investors.

shows GOOGL outperforming by 12% in volatile markets—a sign of underlying strength. The path forward is clear: buy on dips, hold for the AI revolution, and let Alphabet's cash flow and innovation do the rest.

Investor Takeaway: Alphabet's blend of tariff relief, AI leadership, and Citi's bullish metrics make it a buy at current levels. While historical backtests of CapEx-driven strategies show modest returns, the long-term AI tailwinds and underappreciated valuation justify patience. The next 12 months could redefine its valuation—and your portfolio.

This analysis synthesizes public data and third-party research. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.