Key Takeaways
Alphabet (GOOG)(GOOGL) stock sank on Wednesday after comments from an Apple (AAPL) executive stoked concerns that artificial intelligence is chipping away at Google’s bread-and-butter online search business.
Apple senior vice president of services Eddy Cue reportedly said search volume in Apple’s Safari browser, in which Google is the default search engine, declined for the first time ever in April, which he attributed to the increasing popularity of AI alternatives.
According to Cue, Apple is considering adding AI-enabled search services like those from OpenAI, Perplexity and Anthropic to its devices at some point in the future.
Shares of Alphabet tumbled more than 7% on Wednesday to lead S&P 500 decliners.
A Shifting Landscape for Search
Questions about Google’s search dominance have been buzzing about Wall Street ever since 2022 when OpenAI’s ChatGPT exploded onto the scene. Analysts immediately began speculating that AI chatbots would supplant search engines as internet users’ preferred source of information and analysis.
For some market watchers, Cue’s comments were further proof of this trend. “Search is shifting away from the traditional blue-link results page that we’ve loved for the past 25 years, to a simplified AI-powered result,” wrote Gene Munster, Managing Partner at Deepwater Asset Management, in a post to X. He says the change poses two problems for Google: “First, the monetization model of sponsored ads needs to be overhauled. Second, Google Search has new competitors, including OpenAI, Grok, Perplexity, etc.”
Wall Street analysts, though, were generally encouraged by what they saw in Alphabet’s first-quarter earnings last month. “We continue to believe Google has data and distribution advantages and has closed the (large language model) performance gap,” Bank of America analysts wrote of the company’s efforts to fend off AI-first competition.
“While still early days, we are excited about AI Mode which brings Gemini directly into search and adds advanced reasoning multi-modal capabilities,” said JPMorgan analysts, referring to an experimental search feature that, according to executives, could double the time users spend on Google.
Google Reinforcing Its Big Advantage
Alphabet has a big head start on its AI-first competitors. Google’s share of global search traffic is estimated to be about 90%. The next-largest search engine, Bing, is estimated to receive just 4% of all search queries.
The threat of AI companies encroaching on its search traffic is acute for Alphabet. Ads displayed on Google’s search engine and related properties like Gmail, Google Maps and Google Play, accounted for 56% of Alphabet’s total revenue in the first quarter.
Google has made it a priority to keep its advantage by integrating AI into its search engine. The company has rolled out AI Overviews, which respond to queries from more than 1.5 billion users in 140 countries a month, said executives on Alphabet’s earnings call last month. Executives say AI summaries are monetized at approximately the same rate as traditional search.
One very serious risk to Google’s search dominance: antitrust enforcement. Last August, a federal judge agreed with Justice Department prosecutors that Google operated an illegal monopoly in the online search market. Cue’s comments on Wednesday came as part of testimony in proceedings meant to find a remedy to that monopoly.
