Is ChatGPT Taking Market Share From Google Search? Alphabet might have a problem it hasn’t had to worry about in years

Alphabet (GOOG 1.43%) (GOOGL 1.68%) has built its business around two highly valued assets over the years: YouTube and Google Search. The latter, however, is facing some significant headwinds right now. Regulators scrutinized its dominance and recently found that it acted as a monopoly.

And with the rise of artificial intelligence (AI) chatbots, there may be less reason for people to rely on search engines. While the transition may not be instantaneous, there may already be a sign that Alphabet’s business could be in trouble.

More users seem to be turning to ChatGPT for answers

According to a recent survey conducted by the investment banking firm Evercore involving 1,300 Americans, 8% said they use ChatGPT as their search engine. That’s up from just 1 percent a few months earlier. Google search remains the leader, with 74% of users surveyed relying on its results, but this is down from 80% in the previous survey.

There is not necessarily a cause for alarm, as Google remains firmly the top choice for many users. And an increase in interest in ChatGPT may not yet be a worrying trend for the business. ChatGPT has been around since November 2022, and if its search share has been around 1% recently, that suggests it hasn’t been picking up much traffic from Google despite its growing popularity.

While the recent surge in people choosing to use the chatbot over Google Search doesn’t bode well for Alphabet, it may not necessarily indicate a problematic, long-term trend — at least not yet.

But the risk is real. Chatbots like ChatGPT can divert traffic from Google Search. If people can get answers through a chatbot, Google’s search engine may not be as valuable as it once was. This can be a problem for marketers who buy ads on Google Search because it can mean they get less value for their ad spend. This, in turn, may lead to lower demand and slower growth for Google in the future.

This is not a problem Google has had to worry about in the past

Whether it’s ChatGPT or another chatbot, the danger for Google is that they may finally have real competition to worry about now. Its search position was so strong that a US judge ruled last month that the company had a monopoly on it. According to data from statcounter, Google accounts for 90% of the search engine market share and MicrosoftBing is a distant second with only 4% of global searches.

Going forward, however, as chatbots become more prominent, the playing field could intensify. Although Alphabet has its own chatbot, Gemini, it will have to compete with several chatbots, including not only ChatGPT, but also Microsoft’s Copilot, Meta AI (from Meta platforms), and others.

It may be harder than ever for Alphabet to continue to dominate search not only because of the possible fallout from the recent antitrust case, but also considering the role AI chatbots may play in the future; there’s no reason to expect Gemini to dominate as a chatbot the way Google has dominated as a search engine in the past.

If Google’s search dominance is called into question, that could drastically impact Alphabet’s long-term growth prospects due to its reliance on search. Revenue from Google Search and related properties totaled more than $48.5 billion in Alphabet’s most recent quarter (which ended June 30), accounting for 57% of the top line. If there’s a noticeable drop in that number, that could spell trouble for the tech stock.

I’d avoid Alphabet stock despite its seemingly low valuation

Alphabet looks like a cheap stock to buy — it’s trading at just 22 times its trailing earnings. But if its revenue declines in the future because it’s no longer able to dominate search queries, that multiple could quickly become much higher. Additionally, with the economy likely to enter a recession in the near future, ad spending may also begin to slow.

Meanwhile, its antitrust troubles are by no means over. Investors have yet to learn what the fallout will be from the ruling on its search monopoly, and this month a new trial began to examine whether Google’s ad technology also gave it an unfair advantage.

While it may seem like a bargain, Alphabet stock is trading at a discount for good reason — there’s a fair amount of risk with the business in both the short and long term. Unless you’re a contrarian investor and have at least a moderate risk tolerance, you’re better off chasing other growth stocks.