Alphabet (GOOG 2.30%) (GOOGL 2.70%) built its massive business around providing users with useful search results. Its search engine is so critical for businesses to succeed that companies often hire experts on search engine optimization to ensure they rank high on search results. Being in the top position can make a significant difference in how much traffic and revenue a business generates.
Chatbots and artificial intelligence (AI) can throw a serious wrench into that. If, for instance, users only need to ask a personal assistant or chatbot a question, rather than use Google Search, it can impact how much traffic is going to the popular search engine.
Tech companies have been investing in developing their own chatbots, with arguably none more popular than OpenAI's ChatGPT. And OpenAI recently announced plans to launch another product, and this one is a more direct threat to Google Search. It's an actual search engine called SearchGPT.
What is SearchGPT?
In July, OpenAI announced that it's testing SearchGPT, which uses AI to help people find what they're looking for, similar to its chatbot ChatGPT. The key difference is that, unlike the chatbot, where users get a single result, they can get multiple results and links to sources.
The company says that SearchGPT will "combine the strength of our AI models with information from the web to give you fast and timely answers with clear and relevant sources." It's currently in testing mode and there's a wait list for people to try the prototype, so there's no timeline as to when it may be fully available to the public.
Why SearchGPT could be a big problem for Google
Google faced competition from many search engines in the past, but there's definitely something different about SearchGPT. ChatGPT has proven to be immensely popular, already having more than 200 million monthly users. And that popularity could help SearchGPT be a potentially formidable competitor to Google Search.
Compounding the issue for Google is a recent ruling in the courts that found that Alphabet has an illegal monopoly when it comes to its search engine. Alphabet has been paying companies billions of dollars to become the default search engine on phones and browsers. The court ruled that by doing so, the company effectively stifled competition.
It's not clear what the penalties or consequences will be, but the ruling could significantly impact Google Search's practices. This could exacerbate the challenge the company may face from SearchGPT in the near future.
Google Search is still Alphabet's bread and butter
It's hard to overstate the importance of these developments. Of the nearly $85 billion in revenue that Alphabet generated in its most recent quarter, which ended in June, approximately $49 billion was from revenue related to its "Google Search & Other" segment. When including Google Network and YouTube ads, all Google advertising revenue for the period totaled $64.6 billion.
Alphabet has a lot at stake if it loses its dominant position in search. It generates a considerable amount of money from ads related to Google Search. If the recent ruling changes how its business operates, it may be easier for a competitor, such as SearchGPT, to put a big dent into the web traffic that goes to Google Search and, ultimately, the revenue Alphabet generates from that.
Should investors avoid Alphabet's stock?
Investors shouldn't dismiss the threat that SearchGPT and AI, in general, pose to Alphabet's business. The company could potentially have the most to lose due to AI since it's so dependent on search queries and questions people enter into its search engine.
Alphabet has been working on developing its own chatbot Gemini, and its success could ultimately determine how effectively Alphabet can fend off this latest threat. But it's too early to tell at this point what the impact will be from SearchGPT.
The danger for Alphabet is that with so much exposure to search-related revenue, a drop in that could significantly impact its valuation, which is currently around $2 trillion.
Before I'd consider investing in Alphabet's business, I'd wait to see not only how effective and popular SearchGPT is, but also what impact the recent antitrust ruling has on Google Search. Until there's clarity on those two issues, the prudent thing for investors to do may be to wait on the sidelines for now. Investing in the tech stock with those two issues still up in the air could leave investors exposed to too much risk and uncertainty.
