Alphabet Navigates UK Regulatory Scrutiny – Stock Underperforms in 2025 Despite AI Push

Alphabet Inc. (NASDAQ: GOOGL) finds itself grappling with regulatory headwinds in the UK while simultaneously pushing forward with ambitious artificial intelligence (AI) integrations across its core search functionalities.

The company's stock price has had a rare period of underperformance since the start of this year, down 12%, whilst the Nasdaq 100 has added 5%. Concerns over the firm's core search business has intensified in the new AI era.

The UK's Competition and Markets Authority (CMA) has initiated an investigation into Google's search and search advertising practices, examining whether the tech giant holds a “strategic market status” that could necessitate mandated behavioral changes. The CMA's probe, expected to conclude by October 2025, focuses on Google's market dominance, its potential to stifle innovation, and its data collection practices, especially in the context of AI integration.

The outcome of this investigation could significantly impact Google's operational freedom and potentially force changes to its data practices, adding a layer of uncertainty for investors. Recent developments indicate the CMA is considering proposals that would grant Google a “strategic market status,” giving regulators more power to enforce consumer protections and impose fines for breaches of competition rules. Google has expressed concerns that such changes could have significant implications for businesses and consumers in the UK, potentially challenging critical areas of its business.

Adding to the regulatory complexity, Google has been proactively modifying its European search results in response to the Digital Markets Act, addressing concerns from smaller competitors about decreased traffic. These adjustments include new formats for rival price comparison sites, expanded user choices, and new ad units, signaling Google's efforts to comply with evolving regulatory landscapes and mitigate potential antitrust concerns.

Despite these regulatory challenges, Alphabet is relentlessly pursuing its AI-first strategy, exemplified by the expansion of AI-generated summaries, known as AI Overviews, to new countries, including the UK. This move reflects Google's commitment to integrating advanced AI technologies into its services, aiming to offer users more intuitive and efficient search experiences.

However, the initial rollout of AI Overviews faced criticisms regarding inaccuracies, prompting Google to implement updates to enhance quality and restrict content sources, highlighting the ongoing refinement required for these AI-driven features.