Google’s shareholders have been worried for over a year about the potential risks that artificial intelligence (AI) could pose to the company’s lucrative search business.
This week, the danger became more urgent.
Testimony in court from Apple Inc.
On Wednesday, an executive announced that Apple is considering incorporating AI services into its web browser, a move for which Google currently pays around $20 billion annually to be the default search engine.
According to Apple’s senior vice president of services, Eddy Cue, it is a concern that searches on Apple’s Safari browser decreased for the first time last month.
The findings suggest that competitors such as OpenAI and Anthropic are beginning to impact Google Search, which generates more than half of the parent company’s revenue and most of its profits.
Alphabet mentioned in a later blog post that search queries are going up, especially from Apple users.
Alphabet shares dropped by almost 7% for the week, while the Nasdaq 100 only decreased by 0.2%.
The drop caused a loss of $138 billion in market value.
Art Hogan, chief market strategist at B. Riley Wealth Management, questioned whether Alphabet will lose its main source of revenue.
Alphabet is facing competition in search for the first time and is beginning to show weaknesses.
Concerns about Alphabet falling behind in AI have led to several stock sell-offs since ChatGPT was released in late 2022, such as in February 2023 when the stock dropped due to worries about the accuracy of its AI chatbot.
But despite some setbacks, Alphabet has been able to recover and was doing well until Wednesday.
The stocks went up after the company’s earnings report revealed that its search advertising business performed well in the first quarter ending on March 31.
Alphabet’s decline in size and speed reveals that concerns about AI disruption are overshadowing other aspects and causing challenges for investors in determining the tech giant’s value.
Alphabet’s stock has consistently been valued lower than other large companies such as Microsoft Corp.
The gap has gotten bigger over the last year because people are worried that the owner of YouTube is not keeping up with advancements in artificial intelligence.
According to Bloomberg data, Alphabet shares were priced at 15 times projected profits for the next year at the end of Wednesday, which is lower than the average of 21 times over the past ten years.
Microsoft’s price is 30 times its expected earnings, higher than the average of 26.
B.Riley’s Hogan believes that increased competition in search may jeopardize future profits.
He mentioned that we are unsure about the amount of market share it could lose or how fast this might happen.
We can’t be certain about the earnings aspect of the P/E ratio.
A spokesperson from Alphabet refused to provide additional comments.
