John Ballard, The Motley Fool
5 min read
In This Article:
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Alphabet stock is underperforming the major market indices in 2025 so far.
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AI models like ChatGPT and Perplexity could be threats to Google's search dominance.
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Google posted just a 2% year-over-year increase in paid clicks last quarter.
Shares of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) are down 12% so far in 2025. The Google owner is underperforming the Nasdaq Composite, which has rallied in recent weeks and is only down about 1% year to date at the time of writing.
At first glance, the stock appears to be a no-brainer buy. This is one of the largest and most profitable companies in the world, with a very strong brand in Google. But some investors are questioning Google's competitive position, especially in search. More people seem to be using OpenAI's ChatGPT and other leading artificial intelligence (AI) models as a substitute for Google Search.
We'll explore what this means for Google. But I believe investors could be greatly underestimating the company's AI capabilities.
Top AI models like OpenAI's ChatGPT and xAI's Grok could be pulling users away from Google Search, since these models can be used as search engines. Alphabet stock fell sharply earlier in May after reports surfaced that Apple experienced a decline in Google Search volumes through its Safari browser for the first time in April, which Apple is blaming on AI.
Perplexity is one model that has taken a big step to compete with Google. It has a partnership with Shopify that allows users to buy products they find while using Perplexity. Shopify could reach a similar deal with OpenAI. This is a real risk for Google, since Search is widely used by people when shopping online.
Adding fuel to the negative sentiment around Alphabet, its first-quarter earnings report showed that paid clicks for the ads displayed in search results grew just 2% year over year, compared to 5% in the year-ago quarter. This is not what investors want to see, given that Search revenue comprised 56% of the company's total revenue last year.
One problem with the market's reaction to the report about Apple is that Safari search volumes don't paint a complete picture of Google's competitive position. Google Search has over 2 billion users making over 5 trillion searches annually. Alphabet was quick to offer more detail for investors following the news on Apple. "We continue to see overall query growth in Search," the company said, while also noting: "That includes an increase in total queries coming from Apple's devices and platforms."
