Artificial intelligence: Alphabet is driving Google forward in the chatbot race

So, is everything plain sailing? The situation is more complicated than that. One of the issues experts are pondering is precisely the impact of AI on the business model of internet search engines. Google remains the almost unchallenged leader in global web search. In 2025, the big ‘G’ held around 89–90 per cent of the global market share. This figure is staggering and – as things stand – does not cause any concern amongst Alphabet’s management. However, according to recent market analyses, conversational chatbots are attracting a growing number of users. Around 5.6 per cent of desktop browser search traffic in the United States is now being captured by tools such as ChatGPT and Perplexity. The growth in AI-powered conversational search is exponential: it stood at 2.5 per cent just a year ago, and was even below 1.3 per cent at the start of 2024.

And that’s not all. Among users considered ‘early adopters’ – those who started using chatbots as early as 2023 – the trend is even more pronounced: 40 per cent of desktop traffic in this group now passes through AI tools, whilst the share accounted for by traditional search engines has fallen from 76 per cent to 61 per cent in just twelve months. In short: the challenge is real and – if not in the very short term – it will have an impact on the world of web search.

Looking beyond individual trends – such as, more specifically, Google’s competitors? Among the giants is, indeed, ChatGPT. The application boasts over 5.2 billion monthly visits as of early 2025, and the version featuring active browsing and real-time citations makes it a credible alternative to the big ‘G’. In particular – as several analysts have pointed out – ChatGPT has changed users’ expectations, with users beginning to prefer conversational interactions over traditional lists of links. That said, however, it must not be forgotten that there is considerable friction between OpenAI (the creator of ChatGPT) and its major backer, Microsoft. There are several points of contention: ranging from the fact that OpenAI itself has become a competitor to the Redmond-based group in the field of AI for businesses, to Sam Altman’s ‘start-up’ exploring partnerships with other cloud providers (Google Cloud, Oracle, CoreWeave) to reduce its reliance on Microsoft Azure. Clearly, such situations can create turbulence for OpenAI’s AI.

But it’s not just about ChatGPT. There are also – alongside Microsoft’s Bing, ‘enhanced’ with Copilot’s AI – other competitors emerging. One such example is Perplexity AI. It is a start-up – founded in 2022 by former engineers from OpenAI and Google – where the response engine provides detailed answers with citations of sources to verify their reliability. In less than two years, Perplexity has seen explosive growth: in March 2025, the site exceeded 160 million monthly visits, with an annual increase of over 200 per cent. In May 2025, the company revealed that it was processing around 780 million queries per month, equivalent to 30 million per day. This volume is still small compared to the major search engines, but it is rising very rapidly.

Alphabet – unsurprisingly – has responded to the challenge posed by ChatGPT and other chatbots. How? Firstly, it has enhanced its search ecosystem by introducing native conversational tools such as AI Overviews and AI Mode. These are integrated into Google Search and offer concise answers generated by Gemini 2.5 above traditional links. That’s right! One of the major concerns with such a strategy is that – by not prompting the user to click on the link – search monetisation could take a hit. That said, however – in order to avoid this undesirable effect – Alphabet has started inserting sponsored adverts directly into the AI-generated content. What’s more, it has chosen to limit the use of AI to a subset of ‘queries’, precisely to avoid cannibalising commercial traffic. Furthermore, visual features such as Lens and Circle to Search have been enhanced; when integrated with artificial intelligence, they improve interaction and user retention. In the wake of such moves, the group has reiterated – citing the latest quarterly figures – that AI does not replace search but expands it. The DIY investor must, of course, weigh up such considerations, monitoring search-related advertising revenue and the performance of search itself.

So far, these are some thoughts on the economic data and the key challenge facing web search. Investors, however, must also bear in mind another aspect: the antitrust case involving Alphabet in the US. As is well known, in August 2024, a federal judge ruled that Google had acted unlawfully to maintain its market position. After several stages, the proceedings regarding the ‘remedies’ to be implemented by Google itself have reached their final phase. A decision is expected by early August. According to some analysts – although the exact nature of the remedy remains uncertain – the most likely outcome could be a ban on exclusionary practices and on the exclusive pre-installation of Google Search on major access points in the United States, such as Apple devices, Android smartphones, third-party browsers and Chrome.

More punitive measures – such as a requirement to sell Chrome or restrictions on artificial intelligence programmes – are considered less likely. However, they remain a possibility. Consequently, the utmost caution is required. This also applies to the share price’s reaction on the stock market.

That share, which – according to Seeking Alpha – has a non-GAAP P/E ratio for 2025 of 19.5 times and a 3–5-year non-GAAP PEG ratio of 1.3. These figures are slightly higher than the sector average, but certainly not that high. So much so that Seeking Alpha itself describes the valuation as ‘challenging’. Momentum is considered ‘moderate’, whilst profit margins are assessed as ‘strong’.

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