Why Google's AI Shift Could Redefine Search, And Make Clicks Less Relevant

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BofA keeps Buy on Alphabet, sees AI driving new revenue via subscriptions and smarter ad monetization.
Analyst says Google's AI tools may cut clicks but boost targeted ads; Gemini subs could hit $12B by 2027.
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BofA Securities analyst Justin Post maintained a Buy rating on Google parent Alphabet Inc GOOG GOOGL with a price target of $200 on Monday.

Post projected fiscal 2025 sales of $332.69 billion and EPS of $9.72.

AI capabilities are changing search interactions and increasing utility and functionality, Post noted.

Given new capabilities, the analyst noted that a multi-tiered product monetization structure that includes subscriptions is evolving.

Also Read: Meta, Amazon, Booking Best Positioned For Agentic AI Opportunity, Says Analyst

He reviewed Google’s search business drivers, including a growing revenue pie as search utility has had a step function increase, a shift from traditional ad-supported search towards paid tiers, a reduction in search clicks and a change from CPC to CPA transactions, and OpenAI traffic ramp and competitive catalysts.

Post said the growing adoption of Google’s AI Overviews and AI Mode could result in fewer clicks but will enable Google to better interpret queries with targeted ads.

The analyst also noted that Google’s updated Smart Bidding framework should broaden ad eligibility across a broader range of query types, further supporting AI monetization.

As Google monetization evolves, Search metrics such as paid clicks could become less relevant, and monetization KPIs (like ARPU) may better reflect Search performance, he said.

Post noted an increased focus by Google on product reach disclosure (15 products with 500 million+ users).

According to the analyst, Google is well-positioned with tech talent, extensive data to build AI models, and multi-product distribution to drive AI usage and monetization.

He said that beyond Search, Google will capture growth through Google One subscriptions, Workspace price increases, and system-level integrations across Android and ChromeOS.

Post estimated that Gemini-driven subscription revenue could grow to $12 billion by 2027 and Workspace will see a $1 billion+ annualized benefit from price increases this year.

The starting point for access to information and transactions will shift from browser-based to mobile O/S and app-based, with at least five tech titans (Amazon.Com Inc AMZN, Apple Inc AAPL, Google, Meta Platforms Inc META, and OpenAI) targeting the opportunity, the analyst said.

He said this shift will erode Google’s long-standing competitive moats and reduce usage share.

In the near term, OpenAI is well funded and scaling rapidly and likely to introduce ads, while Meta could launch Agentic AI capabilities to its 1 billion assistant users, and Amazon has built an Agent that can shop across other sites, Post said.

Post projects fiscal 2025 sales of $332.69 billion and EPS of $9.72 for Alphabet.

Price Action: GOOGL stock is down 1.4% at $165.36 at last check Monday.

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