AI’s threat to Google just got real
Summary
A drop in search traffic is a reminder that technological advancement can displace long-established tech giants.Google may not be such a hard habit to break after all.
A senior Apple executive said Wednesday that Google searches over the Safari web browser fell over the last two months. “That has not happened in over 20 years," Eddie Cue, Apple’s senior vice president of services, said on the witness stand during the penalty trial phase of the Justice Department’s antitrust lawsuit against Google. Cue attributed the drop to a growing number of people using generative AI services such as ChatGPT and Perplexity.
It was a costly revelation. Google-parent Alphabet saw its share price tumble more than 7% Wednesday after news outlets reported the comments. That cost Alphabet about $250 billion in market cap. Apple’s shares also fell more than 1% by the close, as Google’s traffic over Safari powers a lucrative partnership that now generates more than $20 billion in annual payments to the iPhone maker.
But for Google, the latest comments only serve to thicken the cloud of uncertainty that hangs over the company after losing not one but two federal antitrust cases over the last nine months. Both cases are seeking to break the company up in some fashion, under the basic argument that Google dominates the internet search business in such a way that even deep-pocketed challengers like Microsoft have little chance of breaking in. Google powered 89.7% of the world’s internet searches last month, according to data from Statcounter. Microsoft’s Bing was next up, with a 3.9% share.
And yet, Google suddenly looks more vulnerable even without the government’s intervention. Its near-90% search share now is down from around 93% in late 2022, when ChatGPT first launched. A small slip, to be sure. But Google has also remained below the 90% mark for most of the last six months, which is a duration not seen in at least a decade, according to Statcounter’s data. As of last month, around 400 million people were using ChatGPT on a weekly basis, according to parent company OpenAI.
Google’s new vulnerability to competition could help bolster its case against a breakup. Microsoft, too, was once in the government’s antitrust crosshairs but was actually laid low by technological shifts and its own missteps.
Google remains the dominant name in the moneymaking part of the search business. MoffettNathanson analysts estimate that the “vast majority" of search queries directed to AI chatbots are noncommercial in nature. But Alphabet isn’t getting much credit anymore from Wall Street for that financial heft. The stock is now down nearly 12% over the last 12 months and fell below 16 times projected earnings on Wednesday for the first time in 12 years, according to FactSet data.
That makes Google’s parent the only megacap tech to be commanding a discount to the S&P 500 as a multiple of forward earnings, according to FactSet data. That might look compelling for a company now generating nearly $75 billion in annual free cash flow. But the prospect of disruption adds another red flag on top of the breakup risk. Google is cheap for a reason.
Write to Dan Gallagher at dan.gallagher@wsj.com
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