Will AI Spell the End for Google Search?

Key Takeaways

On Wednesday, Alphabet’s stock price dropped following comments made by an Apple executive who mentioned that their company was considering integrating AI chatbots from firms such as OpenAI, Perplexity, and Anthropic into their products. This potential shift has raised concerns about a possible reduction in Google's dominance within the online search sector.
Following Alphabet’s recent quarterly earnings release, financial experts from Wall Street expressed overall optimism regarding the measures Google has implemented to generate revenue through AI integration into its search platform.
More than half of Alphabet's total revenue in the previous quarter came from ads on Google Search and associated platforms.

Alphabet ( GOOG )( GOOGL ) shares dropped on Wednesday following remarks made by 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.

Cue indicates that Apple may incorporate AI-powered search capabilities similar to those offered by OpenAI, Perplexity, and Anthropic into their devices sometime down the line.

Alphabet's shares dropped over 7% on Wednesday, making them one of the biggest losers on the S&P 500.

A Changing Terrain for Searches

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.

Some observers saw Cue's remarks as additional evidence of this shift. "The search experience is moving away from the conventional blue-link results pages we have been accustomed to for the last quarter-century towards more streamlined AI-driven outcomes," noted Gene Munster, Managing Partner at Deepwater Asset Management, in an X posting. According to him, these changes present two challenges for Google: "Primarily, their ad revenue model must undergo significant revisions due to this transition. Additionally, Google now faces fresh competition such as OpenAI, Grok, Perplexity, among others."

Wall Street analysts, however, were largely upbeat about what they observed in Alphabet's performance. first-quarter earnings Last month, Bank of America analysts noted that "Google maintains significant data and distribution advantages and has narrowed the (large language model) performance gap," referring to the company’s strategies for addressing competitive pressure from AI-focused rivals.

"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 holds a significant lead over its rivals focused on artificial intelligence. It's believed that Google commands around 90% of worldwide search traffic. In comparison, the second biggest search engine, Bing, reportedly handles only approximately 4% of total searches globally.

The potential intrusion from AI firms into its search domain poses a significant risk for Alphabet. In the first quarter, ads shown on Google’s search platform as well as associated services such as Gmail, Google Maps, and Google Play made up 56% of the company’s overall revenues.

Google has prioritized maintaining its edge by incorporating AI into its search engine. According to statements during Alphabet’s recent earnings call, the company has introduced AI Overviews, serving over 1.5 billion monthly users across 140 countries with query responses. Company officials mentioned that these AI-generated summaries generate revenue at roughly the same rate as conventional searches.

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.

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