Alphabet shares may look cheap, but investors may want to think twice before buying.
alphabet (Google 1.98%) (Google 2.05%) For years, the company has built its business around two valuable assets: YouTube and Google Search, but the latter is now facing significant headwinds as regulators have come under scrutiny for the company’s dominance and it was recently found to have held a monopoly.
And the rise of artificial intelligence (AI) chatbots could give people less reason to rely on search engines. While this shift may not happen immediately, there may already be signs that Alphabet’s business is in jeopardy.
It seems that more users are turning to ChatGPT for answers
According to a recent survey by an investment bank, Evercore In a survey of 1,300 Americans, 8% said they use ChatGPT as a search engine, up from just 1% a few months ago. Google search still comes out on top, with 74% of surveyed users relying on its search results, but that’s down from 80% in the previous survey.
This isn’t necessarily a cause for concern, as Google remains the number one choice for many users, and the increased interest in ChatGPT may not yet be a worrying trend for the business: ChatGPT has been around since November 2022, and given that its recent search share was only around 1%, it suggests that it isn’t getting much traffic from Google despite its sudden rise in popularity.
While the recent trend of more people choosing to use chatbots instead of Google searches doesn’t bode well for Alphabet, at least for now, it may not necessarily signal a troubling long-term trend.
But the risks are real. Chatbots like ChatGPT could divert traffic away from Google Search. If people can get answers through chatbots, Google’s search engine may not be as valuable as it was before. This could be problematic for marketers who buy ads on Google Search, as they may not get as much value for their ad spend. This could result in less demand for Google in the future, slowing its growth.
This isn’t a problem Google has ever worried about.
Whether it’s ChatGPT or another chatbot, the danger for Google is that it may finally have a real competitor to worry about. Google’s position in search is so strong that a US court ruled last month that the company has a monopoly. Google has 90% of the search engine market share, according to Statcounter data, MicrosoftBing comes in a distant second with just 4% global search share.
However, as chatbots become more widespread, the playing field is likely to heat up. Alphabet has its own chatbot, Gemini, but as well as ChatGPT, Microsoft’s Copilot, Meta AI ( Meta Platform), etc.
Given the future role of AI chatbots, as well as the fallout from recent antitrust lawsuits, it may become harder than ever for Alphabet to dominate search. There’s no reason to expect Gemini to dominate as a chatbot the way Google has in the past as a search engine.
If Google’s dominance of search is called into question, it could significantly impact Alphabet’s long-term growth prospects due to its heavy reliance on search. Revenue from Google search and related assets totaled more than $48.5 billion in Alphabet’s most recent quarter (ended June 30), accounting for 57% of sales. If that figure were to decline significantly, it could be problematic for the tech stock.
Alphabet stock looks undervalued, but I’d avoid it
Alphabet looks like an undervalued stock, trading at just 22 times its earnings over the past year. But if it loses dominance in search queries and earnings start to decline, the stock could rise quickly. Plus, with a potential economic downturn in the near future, advertising spending could start to decline.
Meanwhile, the company’s antitrust troubles are far from over: Investors still don’t know what the impact of a ruling on its search monopoly will be, and a new trial began this month looking into whether Google’s advertising technology gave the company an unfair advantage.
While it may seem like a bargain, there’s a good reason why Alphabet shares are trading at a discount: There is considerable risk to the business, both in the short and long term. Unless you’re a contrarian investor with at least a moderate risk tolerance, you might be better off looking at other growth stocks instead.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and public relations at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Microsoft. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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