Google Losing Search Dominance to ChatGPT?
Google has been the dominant force in online search for several years now, but with the rapid rise in adoption of OpenAI’s ChatGPT, some investors are worried that this could change soon. Microsoft is incorporating ChatGPT into its Bing search engine, which could represent a potential threat to Google's market share.
The concerns over Google's search business prompted Michael Lippert, portfolio manager at Baron Opportunity Fund, to reduce his exposure to Alphabet. While Google has nearly 85% of worldwide market share in internet search, according to Statista data, Bing's share stands at 8.9%. Alphabet gets a far greater share of revenue from online search and advertising than Microsoft.
The rapid adoption of ChatGPT by Bing has some investors worried that Google is at risk of losing clicks to Microsoft. On Monday, the shares fell as much as 4% on a report that Samsung Electronics has considered replacing Google with Bing as the default search engine on its devices. That followed a 12% decline over two days in February after a demonstration of Google’s home-grown chatbot service Bard raised questions about its accuracy.
Search is a huge deal for Alphabet. Last year, 57% of the company’s revenue was derived from “Google Search & Other”, according to data compiled by Bloomberg. For Microsoft, 5.8% of its 2022 revenue came from search advertising.
The best-case scenario for Alphabet is that it maintains its market share, and because it is already starting from a very strong position, it has a lot to lose. The perception surrounding AI has eclipsed the real near-term financial impact. AI isn’t driving revenue yet, and it’s too early to tell what things will look like over the longer term.
While analysts say it may be a while before AI technology becomes a meaningful driver of search-related revenue, the majority view Alphabet as being well positioned for the long term despite early missteps. Alphabet is trading below its 10-year average multiple and is the only one of the four priced at a discount to the Nasdaq 100. As investors, we like to invest in companies with good balance sheets and the ability to play through headwinds. Alphabet fits that category.
