Weathering the storm
Table of Contents
Alphabet Inc. (NASDAQ; GOOG) is currently facing key questions as AI reshapes the global economy: Can link-based search weather answer-style LLM assistants? Would regulators force a breakup? and Would advertisers keep paying premium rates if generative results slaughter click throughs? As Alphabet develops ways to answer these questions, they not only embrace developments, but also develop means to navigate.
On June 10-11, Alphabet offered a new round of voluntary employee buyouts to its U.S. staff in its marketing, search ads, core engineering, and knowledge & Information divisions. Those who accept and enroll buy July 1st are said to receive a minimum 14 week severance package. Also apart of this announcement, Alphabet said that those ‘Googlers’ that live within 50 miles from a campus must accept a return-to-office (RTO) or leave with severance. This recent news is not surprising as our team here at Sigmanomics have been talking about the effects of AI impacting middle America. Recent corporate memos, labor market data, and analyst research have been pointing to an uneven, but accelerating change of tasks and wages in America’s manufacturing and service sectors.
Voluntary Exit Program
According to internal memos from Senior Vice-President Nick Fox, the VEP “offers a supportive exit path for those who don’t feel aligned with our strategy” while freeing resources for “ambitious AI plans.” The Associated Press confirmed the program spans Search, Ads, and research units and coincides with a pending antitrust remedy that could force structural change. In margin terms, each $1 billion shaved from opex (via buyouts or attrition) preserves 25 bps of operating margin at current run-rate revenue. Further, assuming an average tech salary of $250,000 and a 14 week pay, that amounts to $67,000 per participant. If just 4,000 employees accent, the upfront cost is 270 million versus $1 billion of annualized compensation saved. As the saying goes, if it doesn’t make sense, it doesn’t make dollars.
Gemeini
From a economics viewpoint, generateive AI marginal cost curve is similar to search in 2004 with reference to high cap-ex, near zero incremental cost. By pushing out models so such Pro, Flash, and Flashi-Lite of Google Gemenini Since March 2025, the company seeks to segment demand and defend ad yield.
Compared to OpenAI’s GPT-4o, Google Gemini’s larger context window makes it attractive for code-base refactoring and multimedia reasoning, while GPT-4o retains a small edge on raw factual accuracy and output pricing at very long lengths. What does this mean for Google Search? Early data is showing that generative snippets are expanding the range of what users ask which in turn has pushed search engagement higher by roughly 10 percent. Google is now selling ads inside overviews, which many analysts have said could offset traffic by commanding higher click values on the back of richer query context.
Looking ahead, our analysts at Sigmanomics expect for higher compute cost of generateive answers to shave 1-2 percent off 2025 ad revenue until monestistation scales.
Technical Analysis
Taking a look at the weekly chart of GOOG, the pair stalled at the 61.8 percent Fiboacci retracement on the recent downswing. While the recent high also paired with RSI bearish divergence if another high is made, it will certainly deepen this divergence calling for a larger downsig unless that move lower happens sooner than later.
