What happened

Shares of internet search giant Alphabet (GOOG -1.96%) (GOOGL -1.97%) tumbled 3.5% through 11:30 a.m. ET Monday -- a loss of nearly $50 billion in market capitalization -- after the publication of a New York Times story suggesting that Alphabet may not be an internet search giant for much longer.

As the Times reported over the weekend, key Alphabet partner Samsung -- which built its smartphone franchise on the back of Google software -- is considering dumping Google and replacing it with Microsoft's ChatGPT-powered Bing as the default search engine on its new smartphones.  

So what

And that's not even the worst news for Alphabet.

If Samsung cancels or scales back its contract with Google, this will imperil a $3 billion annual revenue stream for Alphabet. But just a bit farther down the road, Alphabet is preparing to renew an even bigger, $20 billion contract with Apple for use of Google on iPhones. Apple has a history of breaking up with key suppliers in order to go its own way, so this seems like an even bigger risk for Alphabet -- and one investors can't afford to ignore.

The Times describes Alphabet's reaction to the prospect as verging on "panic," as its 80% market share in internet search comes under attack.  

Now what

But is "panic" really the correct reaction to this news? Granted, $3 billion -- and certainly $20 billion -- are big numbers. But Google's search business is many times bigger than either of them at an estimated $162 billion per year. And just because a smartphone maker doesn't make Google its default search engine doesn't prevent a user from installing Google independently. In short, the revenue hit here for Google is both hypothetical and potentially not as big as it might be.

The bigger risk, it seems to me, is that Google has ceded the initiative to Microsoft in this new artificial intelligence race. Being forced now to play catch-up to Microsoft (whose Bing was always an also-ran in search, and so had little to lose by shaking things up and seeing how they fell out), Alphabet is making changes to Google on the fly, introducing first a Bard chatbot (which has already had one high-profile flub), and now working feverishly to prepare a new search engine project called Magi.

The more "panic" forces Alphabet to change the business model that has served it for so long, the more chances it will break something by accident.

That's the risk Alphabet investors should be focusing on today, if you ask me.