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Investing.com -- Alphabet (NASDAQ:GOOGL) saw a sharp drop in value Wednesday following news that Apple (NASDAQ:AAPL) is contemplating the incorporation of an AI-powered search feature in its Safari web browser. This move could potentially challenge Google’s preeminence in the search domain.
By 2:45 PM ET, shares of Google were down 8.4%.
This drop in Alphabet’s shares coincides with the disclosure by Eddy Cue, Apple’s senior vice president of services, that Safari’s search usage experienced a decline for the first time in April. Cue also indicated that Apple is actively investigating the addition of AI search capabilities to its browser. This development has sparked apprehension about Alphabet’s future earnings from search, suggesting that Apple might be planning to lessen its dependence on Google’s search engine, which could affect Alphabet’s advertisement revenue.
Cue’s comments, initially reported by Bloomberg, came to light during a trial scrutinizing Google’s search practices. The trial revealed Apple’s consideration of other search providers like Perplexity and Anthropic as potential alternatives. This revelation has unsettled investors, as Google’s search engine has been a major revenue generator for Alphabet, and any change in market trends could have significant financial repercussions.
The complete impact of Apple’s potential venture into AI search remains uncertain, but Alphabet’s stock reaction indicates immediate investor worry about the corporation’s capacity to sustain its search-related revenue if Apple emerges as a competitor in this sector.
Apple’s shares also experienced a decline, dropping 2%. Apple is reportedly "actively looking at" reshaping the Safari web browser on its devices to concentrate on AI-powered search engines, considering the potential repercussions of its agreement with Google and broader industry shifts.
During his testimony in the US Justice Department’s lawsuit against Alphabet Inc., Cue stated that he believes AI search providers, including OpenAI, Perplexity AI Inc., and Anthropic PBC, will eventually supplant standard search engines like Google. He anticipates that Apple will incorporate these players as options in Safari in the future.
Apple currently offers OpenAI’s ChatGPT as an option in Siri and is expected to incorporate Gemini, Google’s AI search product, later this year. Cue mentioned that, in order to enhance, the AI players would need to improve their search indexes. However, even if this does not occur swiftly, they possess other features that are "so much better that people will switch."
Commenting on the news, Stifel analyst Mark Kelley said Mr. Cue’s testimony today reinforced the bearish view that rapid advancements in AI could be having a more immediate impact on Google and traditional search. Based on a prior analysis of a potential loss of share loss in the Apple ecosystem they see the impact somewhere between 10-30 points of market share loss at Apple, which is predicated on a lower TAC rate relative to the approximate $20 billion that Google pays Apple to remain the default search option on Safari.
"While we believe an increasing amount of share loss to AI chabots is being baked into estimates, we view Mr. Cue’s commentary on the Apple-Google relationship (Mr. Cue still views Google as the best financial option for default search) and Google’s Gemini chatbot (which is likely a long-term winner, benefiting from Google’s long history in answering user queries) as partial hedges to share losses in Search...," the analyst added.
(Frank DeMatteo contributed to this article)