Google Shares Plummet on Apple’s AI Search Pivot

Alphabet shares plunged more than 7% on Wednesday after Apple Services Chief Eddy Cue testified that artificial intelligence search engines will eventually replace traditional search engines like Google. During testimony in a federal court in Washington as part of the Justice Department’s ongoing antitrust lawsuit against Alphabet, Cue revealed that Apple is “actively looking at” reshaping its Safari web browser to focus on AI-powered search engines, according to Bloomberg.

The market reaction wiped billions off Alphabet’s market capitalization, reflecting investor concerns about the future of Google’s search dominance, which has been the cornerstone of the company’s advertising revenue for more than two decades. Apple shares also felt the impact, dropping 2% as investors processed the potential loss of billions in revenue that Google currently pays Apple to remain the default search engine on Safari. The testimony comes at a critical juncture for both companies, as the tech industry rapidly pivots toward AI-integrated services across all platforms.

$20 Billion Annual Deal Under Threat

At the heart of the antitrust case is Google’s lucrative arrangement with Apple, under which Google pays the iPhone maker an estimated $20 billion annually to be the default search engine on Apple devices. This agreement has been a significant revenue source for Apple while helping Google maintain its dominance in the search market by ensuring access to the vast user base of iPhone, iPad, and Mac users around the world, according to Reuters.

Cue’s testimony cast doubt on the long-term viability of this partnership, even as he expressed concern about potentially losing the revenue. He admitted to having “lost sleep over the possibility of losing the revenue share” from the agreement with Google, highlighting the financial significance of the arrangement to Apple’s services business. However, his statements about the future of search suggest Apple may be preparing for a future where traditional search engines are less central to its ecosystem.

Safari Searches Decline for First Time

In a revelation that sent shockwaves through the tech investment community, Cue testified that searches on Safari declined for the first time in April, a development he attributed to the rising popularity of AI tools among users. This unprecedented drop in search volume signals a potential paradigm shift in how consumers access information online, with traditional search queries potentially giving way to more conversational, AI-driven interactions.

The news of declining search volume on Safari comes as particularly troubling for Google, which relies heavily on search advertising for its revenue. The company has been investing heavily in its own AI initiatives, including its Gemini model, but faces increasing competition from specialized AI search startups that are gaining traction with users seeking more sophisticated answers than traditional search results can provide.

OpenAI, Perplexity, and Anthropic as Future Options

Cue specifically mentioned several AI companies that Apple is considering as potential search options for Safari, including OpenAI, Perplexity, and Anthropic. He indicated that while these AI search providers would likely be offered as options rather than defaults, he believes they will eventually replace standard search engines like Google, according to Investing.com.

Apple has already begun integrating some of these AI capabilities into its ecosystem, offering OpenAI’s ChatGPT as an option in Siri, and reports suggest it plans to incorporate Google’s Gemini AI search product later this year. However, Cue noted that for these AI tools to fully replace traditional search, they would need to improve their search indexes — suggesting a transition period rather than an immediate replacement.

Antitrust Implications Loom Large

The testimony comes at a particularly sensitive time as the Justice Department pursues its antitrust case against Google. Last year, a U.S. District Court judge ruled that Google had illegally dominated ad-tech markets, and the current proceedings are focused on determining appropriate penalties or remedial actions against the search giant.

Legal experts suggest that Cue’s statements could influence the court’s decision on potential remedies, as they indicate the market may already be shifting toward alternative search technologies that could eventually erode Google’s dominance naturally. However, the immediate concern for investors appears to be the potential loss of Google’s privileged position on Apple devices, which could significantly impact search volumes and subsequent advertising revenue.