Is this new OpenAI product a potential Google Killer?

Alphabet (GOOG 0.95%) (GOOGL 1.01%) has built its massive business around providing users with useful search results. Its search engine is so essential for businesses to succeed that companies often hire search engine optimization experts to ensure they rank high in search results. Being ranked first can make a significant difference in the amount of traffic and revenue a business generates.

Chatbots and artificial intelligence (AI) can throw a serious wrench into this. If, for example, users only need to ask a personal assistant or chatbot a question instead of using Google Search, it can affect how much traffic goes to the popular search engine.

Tech companies have invested in developing their own chatbots, none more popular than OpenAI’s ChatGPT. And OpenAI recently announced plans to release another product, and this one is a more direct threat to Google Search. It’s a real search engine called SearchGPT.

What is SearchGPT?

In July, OpenAI announced it was testing SearchGPT, which uses AI to help people find what they’re looking for, similar to its ChatGPT chatbot. The key difference is that unlike chatbots where users get only one result, they can get multiple results and links to sources.

The company says SearchGPT will “combine the power of our AI models with information from the web to give you fast and timely answers with clear and relevant sources.” It’s currently in testing mode and there’s a waiting list for people to try the prototype, so there’s no timeline for when it might be fully available to the public.

Why SearchGPT could be a big problem for Google

Google has faced competition from many search engines in the past, but there is definitely something different about SearchGPT. ChatGPT has proven to be extremely popular, already having over 200 million monthly users. And this popularity could help SearchGPT be a potentially formidable competitor to Google Search.

Compounding the problem for Google is a recent court decision that found Alphabet has an illegal monopoly when it comes to its search engine. Alphabet paid companies billions of dollars to become the default search engine on phones and browsers. The court ruled that by doing so, the company effectively stifled competition.

It’s unclear what the penalties or consequences will be, but the decision could have a significant impact on Google Search practices. This could exacerbate the challenge the company may face due to SearchGPT in the near future.

Google search is still Alphabet’s bread and butter

It is hard to overstate the importance of these developments. Of the nearly $85 billion in revenue that Alphabet generated in its most recent quarter, which ended in June, about $49 billion came from revenue from its “Google Search and Others” segment. If you include ads on the Google Network and YouTube, all of Google’s advertising revenue for the period totaled $64.6 billion.

Alphabet has a lot at stake if it loses its dominant position in search. It generates a considerable amount of money from advertisements related to Google Search. If the recent ruling changes the way it does business, it may be easier for a competitor like SearchGPT to put a big dent in the web traffic going to Google Search and ultimately Alphabet’s revenue.

Should investors avoid Alphabet stock?

Investors should not dismiss the threat that SearchGPT and AI in general pose to Alphabet’s business. The company may have the most to lose from AI because it is so dependent on the search queries and questions that people type into its search engine.

Alphabet has been working on developing its own Gemini chatbot, and its success could ultimately determine how effectively Alphabet can fend off this latest threat. But it’s too early to say at this point what the impact of SearchGPT will be.

The danger for Alphabet is that with so much exposure to search revenue, a drop in it could have a significant impact on its valuation, which is currently around $2 trillion.

Before I consider investing in the Alphabet business, I would wait to see not only how effective and popular SearchGPT is, but also what impact the recent antitrust ruling has on Google Search. Until these two issues are clarified, the prudent thing for investors to do might be to wait on the sidelines for now. Investing in tech stocks with these two issues still up in the air could expose investors to too much risk and uncertainty.