Quarterly Outlook
Upending the global order at blinding speed
John J. Hardy
Global Head of Macro Strategy
Chief Investment Strategist
Note: This content is marketing material.
Alphabet’s dominance in digital search has long been considered unshakable. But a confluence of rising AI competition, legal scrutiny, and shifting user habits is challenging the tech giant's core business in a way not seen in decades.
On May 7, 2025, Alphabet stock plunged over 7% following a bombshell report from Bloomberg. Apple’s senior vice president of services, Eddy Cue, testified in the Department of Justice’s ongoing antitrust trial against Google, stating that searches through Apple’s browser had declined for the first time—a drop attributed to users turning to AI tools like ChatGPT and Perplexity for search-like queries.
Cue’s comments sparked immediate investor anxiety. For years, Alphabet has paid billions to Apple to maintain its dominant position as the default search engine on iPhones. Now, with consumer behavior shifting toward generative AI tools like ChatGPT, Perplexity, and Meta AI, the foundations of that dominance appear increasingly unstable.
Cue added that while Apple still wants Google as the default in Safari, the company has been in discussions with Perplexity AI about bringing its services onboard. He sees AI search providers like OpenAI, Perplexity AI and Anthropic PBC eventually replacing standard search engines like Alphabet’s Google. The signal is clear: AI-native search alternatives are no longer fringe—they’re becoming part of the mainstream.
Much like Kodak, which saw the digital camera coming but failed to adapt its business model in time, Google sees AI search coming—but hasn’t yet shown how it can monetize it at scale.
Yes, Google is innovating. But it’s also heavily incentivized to protect the ad model. That tension—between adaptation and preservation—mirrors the innovator’s dilemma.
From a tactical perspective, investors are grappling with two opposing forces:
Current analyst projections expect Google Search to grow at a 6% CAGR over the next five years, versus 10% for the broader digital ad market—reflecting structural headwinds, but not collapse.
Google I/O developer conference, scheduled for May 20-21, could be a critical opportunity for Alphabet to reshape the narrative. Investors will look for:
As AI-native platforms reshape how people access information, Alphabet’s ability to evolve from its traditional ad-driven model will determine whether it remains a leader—or joins the list of tech titans overtaken by disruption.