Alphabet Inc. is facing increasing scrutiny from shareholders and regulators alike as concerns about artificial intelligence (AI) threaten the company's core search business. The latest revelations from a recent court testimony have heightened fears, indicating that Apple Inc. is exploring the integration of AI services into its Safari web browser, for which Google pays approximately $20 billion annually to remain the default search engine.
On May 7, 2025, Eddy Cue, Apple’s senior vice president of services, testified that searches on Safari fell for the first time last month. This alarming news suggests that competitors like OpenAI and Anthropic may be encroaching on Google's search market, which represents over half of Alphabet's revenue and a significant portion of its profits. In response to these developments, Alphabet issued a blog post asserting that search queries continue to rise, including those from Apple users. This statement helped to stabilize Alphabet's stock, which had closed down 7.3 percent on the same day, but the company is still on track for a weekly decline of about 6 percent, translating to a staggering $120 billion drop in market value.
Art Hogan, chief market strategist at B. Riley Wealth Management, commented on the situation, stating, "The basic issue is, will Alphabet lose its cash cow? This is the first time Alphabet has really seen competition in search since the category was originated, and we’re already seeing chinks in the armor.” Concerns over Alphabet's ability to keep pace with AI advancements have led to a series of selloffs since the debut of ChatGPT in late 2022. For example, Alphabet's stock price plummeted in February 2023 due to worries about the accuracy of its AI chatbot.
Despite the stock's recent downturn, Alphabet had shown resilience in the past, rebounding after positive earnings reports that indicated strong performance in its search advertising business for the first quarter ending March 31, 2025. However, the current selloff is indicative of deeper anxieties regarding the company's future profitability in light of intensified competition.
As investors weigh their options, Alphabet's stock is trading at just 15 times projected profits for the next twelve months, significantly lower than the historical average of 21 times. In contrast, Microsoft is priced at 30 times projected profits, reflecting a growing gap in investor confidence. Hogan noted, "We don’t know how much share it might lose, or how quickly. That means we can’t be confident in the earnings part of the P/E multiple.”
Nevertheless, Alphabet's market share remains substantial, with approximately 89.7 percent of the global search engine market, according to March 2025 data from Statista. This figure has decreased from 92.9 percent in January 2023, shortly after the launch of ChatGPT. Despite the challenges, more than 80 percent of the 76 analysts tracking Alphabet maintain buy ratings. However, this is lower than other tech giants like Microsoft and Amazon, both of which boast buy ratings from over 90 percent of analysts.
Mark Mahaney from Evercore ISI reassured investors, stating that although Google’s search volume growth has slowed, revenue expansion remains consistent. He advised clients to consider buying shares following the recent drop. Yet, some analysts are growing cautious. Ben Reitzes from Melius expressed concerns that the current estimates predicting a net income of $115 billion for 2025 might be overly optimistic. He warned, "Given the April trends indicated in Cue’s comments, paid clicks could be getting worse. In our experience, this stuff happens quickly.”
In another significant development for Google, Texas Attorney General Ken Paxton announced on May 9, 2025, that the company has agreed to pay approximately $1.375 billion to settle two lawsuits accusing it of violating data privacy laws. This settlement stems from a lawsuit filed by Paxton in 2022, which claimed that Google unlawfully tracked and collected users' private data, including geolocation and biometric information.
Paxton highlighted that the settlement amount is unprecedented, far exceeding any other state’s claims for similar violations. However, it is important to note that the settlement does not imply any admission of wrongdoing by Google. The tech giant is also grappling with the aftermath of a landmark antitrust ruling from last August, which determined that it held a monopoly in the search engine market. The Department of Justice (DOJ) is currently engaged in a court battle with Google to determine the necessary actions following this ruling, including a potential divestiture of its Chrome web browser.
During the ongoing antitrust proceedings, Liz Reid, Google's head of search, testified that the company would need to reallocate approximately 20 percent of its search team, equating to between 1,000 and 2,000 employees, to comply with the DOJ's proposed remedies. Reid emphasized that sharing data used for generating search results could create privacy risks. The DOJ's proposals also include eliminating "compelled syndication," a practice where Google makes deals with companies to ensure its search engine remains the default option on various devices.
Apple's Eddy Cue testified that Apple features Google as its default search engine because it is considered "the best search engine." Reid further explained that Google has invested over $20 billion in its proprietary Knowledge Graph database, which contains more than 500 billion facts, highlighting the company's commitment to maintaining its competitive edge in search.
As the legal landscape continues to evolve, closing arguments for the search remedies trial are set for May 29 and 30, 2025, with a judge's decision expected in August. Additionally, Google faces another remedies trial for its advertising technology business scheduled to commence on September 22, 2025.
The convergence of legal challenges and competitive threats from AI is reshaping the landscape for Alphabet and Google, compelling the tech giant to navigate a complex web of regulatory scrutiny and market pressures as it strives to maintain its dominance in the search engine arena.
