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(Bloomberg) -- For more than a year, Alphabet Inc. shareholders have fretted over long-term risks posed by artificial intelligence to the company’s money-printing search business. This week the threat became much more immediate.
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Court testimony from an Apple Inc. executive on Wednesday revealed that the iPhone maker is exploring adding AI services to its web browser for which Google now pays an estimated $20 billion a year to be the default search engine. Potentially more worrisome: searches on Apple’s Safari fell for the first time last month, according to Eddy Cue, Apple’s senior vice president of services.
The revelations implied that queries fielded by rivals like OpenAI and Anthropic already may be eating into Google search, which accounts for more than half of the parent company’s revenue and the vast majority of profits. Alphabet said in a subsequent blog post that search queries continue to rise, including those coming from Apple users.
Alphabet shares ended the week down nearly 7%, while the Nasdaq 100 fell just 0.2%. The drop erased $138 billion in market value.
“The basic issue is, will Alphabet lose its cash cow?” said Art Hogan, chief market strategist at B. Riley Wealth Management. “This is the first time Alphabet has really seen competition in search since the category was originated, and we’re already seeing chinks in the armor.”
Fears that Alphabet is falling behind in AI have resulted in multiple selloffs since ChatGPT’s debut in late 2022; in February 2023, for example, the stock sank on concerns about the accuracy of its AI chatbot.
However, it has shown an ability to rebound off those losses, and up until Wednesday, Alphabet had been on an upswing. The shares rallied in the days following its earnings report that showed its search advertising business remained strong in the first quarter, which ended on March 31.
The size and speed of Alphabet’s selloff shows how nervousness about the risks of disruption from AI — even for a company with formidable talent in the field — is overshadowing everything else and making it difficult for investors to value the tech giant.
Alphabet has long traded at a discount to megacap peers like Microsoft Corp. But that gap has widened over the past year amid worries the YouTube owner is falling behind in AI.