Google is over. Maybe, but probably not? | Beginner Investors

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Google is over. Maybe, but probably not?

Google dropped close to 10% today after reports (by Bloomberg) saying Apple is “actively” searching for AI browser options in Safari. TL;DR for those who want my opinion upfront: Overblown concern. Even if this is an option for Safari, most consumers will just choose Google anyway assuming Google continues with transforming Search into an LLM-AI engine.

What this means is Apple is finding more search options for Safari. It’s not revamping Safari and removing Google as an option, but searching for more options as a whole. AI search engines like Perplexity and Anthropic (not exactly a search company; more of an AI lab—also a company Google owns 14% of) are now being considered. I would like to assume that Perplexity will win this option if it comes to it because they have more users.

Around the time of this report, Apple announced that Safari search usage was down for the first time ever in April. This means nothing besides that people aren’t using Safari as much for their queries. These searches are still happening, but they’re going elsewhere, and Apple doesn’t want that. And so, with the high probability most of this demand is going to AI search engines and LLMs, Apple wants to have one of those options with Safari.

I don’t want to be too certain about things before I see Google’s next earnings, but I spent a good amount of time talking about this issue in the Discord today with @robertogonzalez_45, @nguy1320, @avalueinvestor and a few others, and the general consensus is that it’s not a major headwind for the company.

As we’ve seen with the recent DOJ issues for Google, the default Search agreement for Apple is already on fire. I’d be surprised if that held up in the next few years. Apple will need to allow consumers to choose their default search engine for their searches on Safari. When this happens, most of them will pick Google—Google has the brand, the overall better product, and everyone is familiar with it. (And this is basically a win-win. Apple gets to frame it as some “we let our consumers choose” thingamajig, and Google can save $20 billion from the default search agreement.)

When it comes to AI search engines here, the same goes. Consumers are already going to have to decide what engine they want to use soon. For most, Google will be their choice. For many, Google will always be their default. Even without default search agreements. And if you want to get technical, Google has the most-used AI LLM-powered search engine in the world thanks to AI Overviews—a feature with over 1.5 billion monthly users transforming the way people treat Google for their searches (longer, more complex questions). Google AI Overviews’ user base is about 44x as many as Perplexity and Anthropic combined.

And it’s just as profitable as normal Google Search.

I want to reiterate that even with all the good, investors will look at the bad with a hyper scope. Yes, Google is in a misty position: regulatory issues, competitive pressures, and so forth. But what’s the good?

I want to come back to the risk section of Google’s recent annual report (which I skimmed through during the conversation in the server today). Like all companies, Google is legally required to report its business risks.

And last year, at the top of its list was competition “from large companies and startups,” with a big, fat, huge, bolded text disclaimer above saying “these risks are only apparent if we do not innovate and acknowledge our current changing market position, and we are doing both.” This is hugely paraphrased, but that’s the gist.

If you listened to the call two weeks ago, and you saw the report, and you pieced everything together from Q to Q, you’ll know that management is staying healthy. They’re acknowledging these pest problems and they’re loading up on pesticides. That big fat disclaimer was put there for a reason. Google is experienced in dealing with changing market conditions. Adaptability is high for the company. Much like $AMZN.

I can only imagine Google can win, if they try.

They’re fighting the lawsuits, they’re innovating and changing Search (for the better) to destroy competition, and they’re doing all of this while investing heavily in growing a profitable distinct cloud business that’s set to benefit greatly from secular trends in the distant future. Plus, many small and medium sized businesses depend on Google Ads. There is no viable alternative to this if they were to cease to exist today. Not by LLMs, not by Facebook. And I think because of that alone it makes a good argument for further Google search dominance (until this changes).

I also want to mention something not too many seem to mention with the “LLMs will kill Google” argument. And that’s about the ecosystem. Gmail, YouTube, Workspace—all of Google’s many widely used products on the consumer side are integrated with Google Search. They are known because of it. Most users of YouTube know Google is affiliated with YouTube. Most Gmail users know Gmail is affiliated with Google, and so forth. Most Google Search users use Google products in a collective manner. They all complement each other. This isn’t an easy thing to eliminate and recreate with an LLM.

Again, I don’t want to be certain. I can’t predict the future and I don’t want to seem as though these problems are small pests that won’t do damage. No, that’s not what I’m saying. What I’m saying is that it doesn’t deserve the pushback Google is taking now. Google’s valuation is currently dislocated and the market keeps twisting its knee. If I were to say anything, I’d say Google is a buy amid these concerns. Assuming you understand them, that is.

(But I also wouldn’t be surprised if this toughness continues. There’s a lot going on. I’m going to be cautious and rational for the next few months. I will be holding and waiting for clarification by Google.)

Anyway, that’s my spiel. Thanks for reading. Stay rational. Follow if you learned something new, and subscribe to my newsletter for more detailed analysis (pinned post on my profile). $MELI analysis out for premium newsletter members soon.

Happy investing.

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