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Apple’s AI Search Tools Pose Risk, but Alphabet Remains Strong
Bad news for Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). Consumer technology giant Apple (NASDAQ: AAPL) may soon introduce artificial intelligence (AI)-powered web-search tools like OpenAI and Perplexity to its Safari web browser. This potential development threatens Google’s dominance in the global search market, which generates over half of Alphabet’s revenue. Consequently, Alphabet’s shares dropped 8% on Wednesday following the news.
The reaction may seem rational at first glance. Yet, could the market be overreacting to an unfounded concern?
Understanding the Context of Apple’s Comment
It’s essential to take these claims with caution. The information did not come from an official announcement but originated during a trial related to the U.S. Department of Justice’s antitrust case against Alphabet. During this trial, Apple’s services chief Eddy Cue suggested that AI-powered search tools may eventually be accessible on Safari. However, no specific time frames or commitments were provided. The market quickly seized upon this vague commentary without adequate context.
Assuming Apple does move forward with alternative search options or replaces Google as Safari’s default search engine, is this a genuine threat to Alphabet?
The consensus is likely not. One major reason is Google’s existing dominance and Safari’s relatively limited user base. As reported by StatCounter, Google manages around 90% of global web queries. While Google is the default search engine on Safari, the browser itself holds only 17% of market share, significantly trailing behind Google Chrome’s 66%.
Could that 17% impact Google’s search business? It’s possible, but unlikely. Research from Chitika reveals that 97% of iPhone users, the majority of Apple’s iOS customer base, continue to use Google for web searches, with approximately half of those searches conducted via Safari.
Google’s Integration into Daily Online Use
This data points to another reason for Alphabet shareholders to remain optimistic regarding Apple’s plans to rival Google’s search options. Google is not just a search engine; it is deeply embedded in the daily online experiences of millions. Google’s Gmail platform boasts over 2.5 billion users, while Google Docs has surpassed Microsoft‘s Office in the productivity sector. Additionally, Nielsen reports that YouTube is the most-visited video streaming platform in the U.S., with viewers logging over 1 billion hours of daily usage across devices.
Image source: Getty Images.
Google’s services have become integral to internet usage for iPhone users as well. Transitioning away from Google will require significant effort since many individuals have formed habitual connections to its offerings, including the AI-driven search features that Alphabet has already rolled out. The company reported an average of 1.5 billion monthly users for its AI Overviews in the first quarter of this year.
The Risks for Alphabet Are Manageable
While it’s possible that some Safari users may try alternative search engines and continue to use them, the risk is probably not as severe as it appears. Even with Safari’s limitations, users predominantly access Google through it. This behavior is unlikely to change rapidly, as the term “Google” has become synonymous with searching the web itself.
In summary, while Alphabet may face some challenges from new AI-powered search options in Safari, the overall impact is expected to be minimal and temporary. If you viewed Alphabet favorably before the recent news, those reasons for investment remain intact.
Should You Consider Investing in Alphabet Now?
Before deciding to invest in Alphabet, take this into account:
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Note: Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board. James Brumley holds positions in Alphabet and The Motley Fool has interests in Alphabet, Apple, Microsoft, and Netflix.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
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