On Wednesday, May 7, 2025, Alphabet Inc’s shares took a hit following comments made by Apple’s Senior Vice President of Services, Eddy Cue, during a Department of Justice antitrust lawsuit remedies hearing concerning Google’s Search business. The market reacted negatively to Cue’s remarks, which suggested that advancements in artificial intelligence (AI) could significantly alter the traditional search dynamics and potentially impact Google’s market position.
Despite the drop in stock prices, InvestingPro data indicates that Google continues to exhibit strong financial health, boasting a "GREAT" overall score alongside a robust revenue growth of approximately 13% over the past twelve months. Analysts from Stifel have reiterated their Buy rating and maintained a $200.00 price target on Alphabet stock, viewing the company’s financial fundamentals as resilient amidst the ongoing challenges.
Stifel analysts had previously assessed the potential market share loss for Google within the Apple ecosystem following an initial ruling in August. They estimated that Google could face a market share decline of 10-30 percentage points at Apple, where it currently holds a dominant 96% market share. This estimation was predicated on the assumption that Google’s Traffic Acquisition Cost (TAC) rate would decrease compared to the approximately $20 billion that the company pays Apple annually to secure its position as the default search engine on Safari.
In light of the ongoing antitrust scrutiny, Google’s strong balance sheet and cash flows position the company favorably to navigate potential changes in its business model. Current assets significantly exceed short-term obligations, providing a buffer against any adverse impacts from the lawsuit. Stifel analysts emphasized that the longstanding relationship between Apple and Google, with Cue still considering Google the best financial option for default search, serves as a mitigating factor for the anticipated market share loss.
Moreover, the analysts expressed optimism regarding Google’s Gemini chatbot, which they believe could emerge as a long-term winner in the competitive landscape of AI-driven search technologies. Google’s extensive experience in addressing user queries is expected to play a pivotal role in the chatbot’s success. The analysts are closely monitoring the trial and plan to update their perspectives as more information becomes available.
While the potential market share loss to AI chatbots may already be factored into current estimates, Stifel analysts argue that Google’s strengths and strategic relationships could act as partial hedges against these losses. This sentiment aligns with their previous analysis on the topic of Agentic AI, where they discussed the transformative potential of AI on the search industry.
In other recent developments, Alphabet reported first-quarter results that exceeded expectations, largely driven by the strong performance of its search advertising business. Analysts, including Ronald Josey from Citigroup, noted the promising results in search and cloud services, which could have positive ripple effects on other tech companies like Meta and Amazon.
In a related announcement, Google’s autonomous driving unit, Waymo, is set to expand its fleet by adding 2,000 new robotaxis by 2026. This expansion will be supported by a new multi-million dollar manufacturing facility being established in Metro Phoenix, which is expected to create hundreds of jobs in Arizona.
However, the competitive landscape for Google remains challenging. Industry experts, including Gene Munster from Deepwater Management, have pointed out that competitors like OpenAI and Grok are gaining traction, emphasizing the need for Google to adapt its monetization model and address the competitive pressures in the search market.
Additionally, JMP Securities analyst Andrew Boone has maintained a Market Perform rating for Alphabet, citing the risks posed by emerging AI technologies and potential regulatory challenges. Despite these concerns, Alphabet’s recent earnings report has positively influenced the tech sector, with stocks like Meta and Amazon experiencing gains in the aftermath.
In contrast, a former executive from Meta expressed optimism regarding Meta’s sustained growth, attributing it to Facebook’s extensive user data and its adaptability in advertising strategies. This dynamic highlights the ongoing evolution of technology companies as they navigate the challenges and opportunities presented by AI and market competition.
As the legal proceedings unfold and technology companies continue to innovate, the future landscape of search and AI remains uncertain yet intriguing. Investors and analysts alike are keenly observing how these developments will shape the industry in the coming months.
