Is ChatGPT Taking Market Share From Google Search? Alphabet might have a problem it didn’t have to worry about for years The Motley Fool

alphabet (GOOG 2.12%) (GOOGL 2.30%) has built its business around two highly valued assets over the years: YouTube and Google Search. The latter, however, faces some significant headwinds at the moment. Regulators have been scrutinizing his dominance and recently discovered that he was acting like a monopoly.

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

More users seem to be turning to ChatGPT for answers

According to recent research by the investment banking firm Evercore involving 1,300 Americans, 8% said they are using ChatGPT as their search engine. This is up from 1% a few months earlier. Google Search remains the leader, with 74% of users surveyed trusting its results, but this is down from 80% in the previous survey.

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

While the recent increase in people choosing to use the chatbot instead of Google Search is not a good sign for Alphabet, it may not necessarily be indicative of a problematic, long-term trend, at least not yet.

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

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

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

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 Microsoft’s Copilot, Meta AI (from Metaplatforms), and others.

It may be harder than ever for Alphabet to continue to dominate search not only because of the potential 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 dominated as a search engine in the past.

If Google’s search dominance is in doubt, this could dramatically affect 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 its top line. If there is a noticeable decline in that number, it could spell trouble for the tech stock.

I would avoid Alphabet stock despite its seemingly low valuation

Alphabet looks like a cheap stock to buy: It trades at just 22 times its trailing earnings. But if your earnings decline in the future because you can no longer dominate search queries, that multiple could quickly increase greatly. Additionally, with the economy potentially entering a recession in the near future, ad spending could also begin to decline.

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

While it may seem like a cheap buy, Alphabet stock is trading at a discount for a 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 looking for other growth stocks.