Alphabet’s Google has held the number one spot in online search for years, dominating the market with no real competition. Recently, however, the rapid adoption of OpenAI’s ChatGPT has some investors worried that the status quo may soon be shifted.
Recently, Google stocks fell after a report that Samsung Electronics was looking at replacing Google with Bing as the default search engine for its devices. Additionally, Alphabet stocks dropped a whopping 12 percent after a demonstration of Google’s in-house chatbot, Bard.
But Alphabet is taking steps to protect their dominance. In an effort to try and remain ahead of competition, the company consolidated its artificial intelligence research groups into one unit, led by Sundar Pichai, CEO of Alphabet.
Google currently holds a whopping 85 percent of worldwide market share in internet search compared to Microsoft’s 8.9 percent, according to Statista data. This means that Google has a lot to lose and only a small room for growth, compared to Microsoft. In terms of revenue, Alphabet gets a larger share of revenue from online search and advertising than Microsoft.
As a result, concerns over the risk to Google’s search data have prompted portfolio manager Michael Lippert of the Baron Opportunity Fund to reduce his exposure to Alphabet.
Despite this, analysts believe that Google is still in a strong position and that their AI technology has not yet been monetized. Jim Awad, senior managing director of Clearstead Advisors reiterated this, stating that Alphabet’s best case scenario is that it manages to keep the same amount of market share, despite the potential competition.
Investors also appreciate that Alphabet is the cheapest of the four top technology and internet stocks, and is trading below its ten-year average multiple. Stephen Lee of Logan Capital Management believes that the financial impact of AI has been exaggerated and it may be a while before it has a measurable influence on search related revenue.
About Alphabet Inc.
Alphabet Inc. is a US-based, multinational conglomerate and one of the largest technology companies in the world. It was founded in 2015 as a restructuring of Google, the world’s dominant search engine and the largest and most valuable technology company in the world. Alphabet Inc. operates through its four major subsidiaries, Google, Calico, Verily, and Waymo. Through businesses such as Google Ads, YouTube, and Android operating system revenue, Alphabet has become the world’s largest online advertising company and is a leader in artificial intelligence and cloud computing.
About Michael Lippert
Michael Lippert is the portfolio manager at the Baron Opportunity Fund. He has extensive experience in the asset management industry, lending his expertise to investments in public equities, private placements, and venture capital. Michael earned an MBA from the Tuck School at Dartmouth, and a Bachelor’s Degree in History from Yale University. Through his investment management, Michael has seen success and has overseen investments in many companies such as Uber, Amazon and Berkshire Hathaway.
