In a surprising turn of events, an Apple executive's comments regarding the impact of AI chatbots on Google’s search business have sent shares of Alphabet Inc., Google's parent company, tumbling. The remarks, made during a recent testimony, suggested that these emerging technologies could significantly erode Google's dominance in the search engine market, leading to a nearly 9% drop in Alphabet’s stock on May 7, 2025.
Sundar Pichai, the CEO of Google and Alphabet, faces increasing scrutiny as investors express concerns about the tech giant's ability to maintain its leadership amidst the rise of AI-powered search engines. Despite these worries, OCBC's equity research team published a report on May 8, asserting that the fears surrounding Google’s market position are exaggerated.
“Alphabet dominates the online search market, with Google capturing over 90% of the global share and over 80% of the US share,” the report stated. OCBC remains optimistic, predicting that Google will sustain its leadership in the search space despite the competition from AI providers.
The backdrop of this situation is crucial. Apple's comments stem from a broader conversation about the future of search technology and the role of artificial intelligence. While Apple has previously explored integrating alternative search engines into its products, the company’s executive emphasized that Google should remain the default search option in Safari, further complicating the narrative.
In the face of increasing competition, OCBC highlighted that while AI technologies have improved significantly, Google has also been proactive in enhancing its offerings. The report noted, “It still remains to be seen if commercial query behavior pivots away from Google significantly in the near term towards these other AI-based providers.”
Adding to the complexity, third-party research indicates that Safari is losing market share to Google Chrome, with the usage of the Google app on iOS reportedly increasing. This trend suggests that users may be more inclined to stick with Google rather than switch to alternative search options.
Alphabet's financial performance also offers a counterpoint to the bearish sentiment. According to their first-quarter results released on April 24, 2025, the company reported a 9.8% year-on-year increase in revenue from search, totaling $50.7 billion (approximately $65.80 billion). This growth underscores the continued strength of Google’s core business even as new competitors emerge.
Furthermore, Google has indicated that it continues to see overall query growth on its platform, including an increase in total queries coming from Apple devices. This suggests that, despite the competitive landscape, Google’s search engine remains a preferred choice for many users.
OCBC’s report also pointed out the financial relationship between Apple and Alphabet, noting that Apple contributes about $20 billion annually to Alphabet through a revenue-sharing agreement. This financial tie adds another layer to the dynamic, as Apple may have strategic reasons to highlight the potential threats to Google’s dominance.
Despite the recent sell-off of Alphabet shares, OCBC believes that the market reaction is overblown. They reiterated a ‘buy’ rating on Alphabet, maintaining a target price (TP) of $210, unchanged from their previous report on April 25, 2025. However, it is worth noting that this was a decrease from a prior target price of $233.
As the tech industry continues to evolve, all eyes will be on Google’s upcoming I/O developer conference. Investors and analysts alike are eager to see how Google plans to address these emerging challenges and what innovations they will unveil to solidify their position in the market.
The conversation around AI and search technology is far from over. As companies like Apple and Google navigate this rapidly changing landscape, the implications for consumers and the industry at large are profound. Will AI chatbots redefine how we search for information, or will Google adapt and maintain its stronghold on the market? Only time will tell.
In summary, while the recent comments from an Apple executive have sparked concern among investors, the fundamentals of Alphabet's business suggest a more resilient outlook. With a commanding market share and ongoing revenue growth, Google appears poised to weather the storm of competition from AI-powered search engines.
