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Alphabet’s (GOOGL) stock price this week has been under pressure and fell to a 2-1/2 week low Wednesday on concern Google may lose its dominance as the leader in online searches. On Sunday, the New York Times reported that Samsung Electronics was considering replacing Alphabet’s Google with Microsoft’s (MSFT) Bing as the default search engine on its devices.
The threat to Google’s online search dominance has escalated in recent months with the addition of OpenAI’s technology to provide ChatGPT-line responses to user queries in Microsoft’s Bing search engine. Google has begun rolling out Bard, its own chatbox search assistant, although it is doing so at a very cautious pace. Open AI’s ChatGPT has swept the world in popularity since its November release, and Microsoft recently integrated OpenAI’s technology into its Bing search engine.
According to data from Statista, Google has 85% of the worldwide market share in internet searches, compared to just 8.9% for Bing. As a result, the risk to Google’s search business, which generated sales of more than $160 billion last year, is enormous. Clearstead Advisors said, “The best-case scenario for Alphabet is that it maintains market share, and because it is already starting from a very strong position, it has a lot to lose.”
The Internet search engine business is a huge revenue generator for Alphabet. According to Bloomberg, 57% of Alphabet’s company revenue last year was derived from “Google Search and Other,” compared to Microsoft, which derived only 5.8% of its revenue last year from Bing. However, most analysts agree it will be a while before AI technology becomes a meaningful driver of search-related revenue. Logan Capital Management said, “AI isn’t driving revenue yet, and it’s too early to tell what things will look like over the longer term.”
A supportive factor for Alphabet is its valuation. The stock trades at less than 18 times estimated earnings, making it the cheapest of the four largest technology and internet stocks, including Apple (AAPL), Amazon.com (AMZN), and Microsoft. Alphabet is also trading below its 10-year average multiple and is the only one of the four stocks priced at a discount to the Nasdaq 100 Stock Index ($IUXX) (QQQ). In addition, in an effort to keep from falling behind in the AI race, Alphabet on Thursday consolidated its artificial intelligence research groups into one unit AI unit, a move that CEO Pichai said will “significantly accelerate” progress.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
