Alphabet's Ad Machine Ignites Stock Surge
Alphabet's (GOOGL) stock has seen significant growth over the past year, returning about 70% against the S&P 500's 21%. The primary catalyst behind this growth is widely cited as Google Cloud, which saw its revenue grow by 82% in fiscal Q2 2026. However, a closer look at Alphabet's ad machine reveals that it was already showing its work months before the price started to move.
In May 2025, YouTube announced Peak Points, a feature that uses Gemini to place ads after viewers are most engaged with a video. Two months later, management reported that advertisers using AI Max saw a 14% increase in conversions, and those using Smart Bidding Exploration saw a 19% increase on average.
Despite fears that AI-driven answers at the top of search results would satisfy users before any ad did, Alphabet's fiscal Q2 2025 figures pointed to the opposite. AI Overviews drove over 10% more queries globally for the query types that show them, and Search and other revenue grew 12% to $54.2 billion in the quarter.
By fiscal Q2 2026, AI Max was out of beta with 500,000 advertisers already using it, and management reported a 20% improvement in showing highly relevant shopping ads due to Gemini's reading of longer, more detailed queries. Search and other revenue grew 17% to $63.3 billion in that quarter.