This could be a buying opportunity for investors.
Investors reacted swiftly to a news report involving Apple’s Safari search and its impact on Google and its parent, Alphabet (NASDAQ:GOOG).
The news, initially reported by Bloomberg, centered around testimony provided by Apple executive Eddy Cue, senior vice president of services, as part of the Department of Justice’s antitrust case against Google for its search monopoly.
In his testimony, Cue said Apple reported a decline in April in search engine traffic on Safari. That was the first time Safari had seen a monthly decline.
Where Google comes in is Safari has a $20 billion deal with Google to be its default search engine.
The concern among investors stemmed from Cue’s comments that Apple was looking at adding AI search to Safari, naming Chat GPT, Perplexity, and Anthropic as potential options. He also surmised that the emergence of AI search is taking market share from traditional search and would eventually replace it.
Google does have Gemini, its own version of AI, but it trails behind ChatGPT, which is by far the leader with 60% market share, and Microsoft Copilot, which owns 14% of the market. Gemini is just 13%, while others, like Perplexity, are making inroads.
But if traditional search was replaced, Google would take a major hit as the leading search engine. In the first quarter, Alphabet generated about $51 billion in revenue through Google search, representing 56% of its total revenue.
However, Google responded to the news report, saying it has not seen a decline in search traffic from Apple devices.
“We continue to see overall query growth in Search. That includes an increase in total queries coming from Apple’s devices and platforms. More generally, as we enhance Search with new features, people are seeing that Google Search is more useful for more of their queries — and they’re accessing it for new things and in new ways, whether from browsers or the Google app, using their voice or Google Lens,” officials said in a statement.
Is Alphabet stock a buy on the dip?
This news sparked the selloff, as Alphabet stock tanked almost 10% after the news first broke Wednesday afternoon. The stock fell from about $168 per share down to around $150 per share at its lowest.
However, Alphabet stock climbed back a bit before the closing bell and was up about 2.5% on Thursday, trading at around $156 per share.
The rebound on Thursday was likely due to investors buying the dip on Alphabet, as the size of the selloff was likely overblown. Certainly, changes to search could hurt Alphabet, but it is premature to speculate on how it will play out – and it perhaps assumes Alphabet will lose Safari search and not increase market share. There’s too little visibility to make that assumption right now.
“We believe the Google (stock) reaction to Apple executive’s comments at antitrust trial is overdone,” Jefferies analyst Brent Thill said in a research note, according to Investor’s Business Daily. “While we agree there are emerging alternatives to Google search, Google is not standing still — with AI Overviews ramping and Gemini AI innovating rapidly.”
Baird analyst Colin Sebastian also felt the selloff was overblown.
“Most of what we heard is information (and risks) that should already be fairly well understood. We’d also remind investors that Google losing the Apple contract could still be net neutral (or even slightly positive) without — $20 billion in annual payments to Apple that directly impact Google’s margins,” Sebastian stated in a research note, according to USA Today.
Overall, analysts have et a median price target of $200 per share for Alphabet stock, which is up about 30% from the current price.
Alphabet stock is down about 19% year-to-date, but it is very cheap, the lowest valued Magnificent 7 stock, with a P/E ratio of 17. Investors should certainly see this sizable dip as a buying opportunity, but as always, do your own research.
