In recent years, Alphabet’s Google has become an Internet powerhouse with the largest share of the search market at 85%. However, with the rapid adoption of OpenAI’s ChatGPT, investors are concerned that their dominance may be coming to an end.
On Monday, Alphabet’s stock dropped 4% following reports that Samsung may be considering replacing Google as the default search engine on its devices. A few weeks prior to this, Alphabet’s stock had seen a sizeable two-day decline of 12% following the unveiling of Google’s own chatbot service Bard. In an effort to rapidly move forwards with their artificial intelligence initiatives, Alphabet combined their AI research groups into one unit on Thursday.
The risk to Google’s search business is that it is the main source of revenue for Alphabet, accounting for sales of more than $160 billion last year. As such, Microsoft’s search engine, Bing, which has integrated ChatGPT, is well positioned to challenge Google.
Analysts have expressed concern that Alphabet’s market share could be drastically reduced by the competition. Although Alphabet currently holds a commanding 85% of the search market share worldwide, Michael Lippert, portfolio manager of Baron Opportunity Fund, stated that even if Google lost 25% to other competitors such as Bing, it would be a significant hit to its market share.
On a positive note, Alphabet’s stock is trading at less than 18 times its estimated earnings, which is cheaper than the other large technology and internet stocks, including Apple and Amazon. In addition, its share price is below its 10-year average, which offers potential to investors.
Founded in 1998, Alphabet Inc. is an American multinational conglomerate headquartered in Mountain View, California. It was created as a holding company and is the parent of Google and several other companies previously owned by them. Sundar Pichai has been the CEO of Alphabet for several years and has overseen several major expansions for the company, such as merging its AI research units Google Brain and DeepMind.
Jim Awad is the senior managing director at Clearstead Advisors, specializing in institutional consulting and investments. In addition, Stephen Lee is the founding principal at Logan Capital Management and has a focus in risk management and portfolio construction. Both of these individuals have commented on the challenges Alphabet faces due to the competition and commented on the company’s low price-to-earnings ratio.
