For the last 20 years, Google parent company Alphabet (NASDAQ:GOOG, GOOGL) has been a nearly unstoppable machine for investment returns. As part of both the original FAANG stocks and later one of the Magnificent Seven, Alphabet has been one of the leading tech stocks thanks to the perennial success of the Google search engine.
Now, though, Google could be challenged by OpenAI’s ChatGPT search capabilities. Is it still worth investing in Google and Alphabet with the risks presented by OpenAI, and how attractive is Alphabet as an investment in today’s market environment?
How Much of a Risk Does OpenAI Pose to Alphabet?
There’s little denying that OpenAI and other AI startups could pose significant long-term risks for Alphabet. Google currently dominates the search engine market, making up about 90% of all global search traffic. The search engine is also far and away Alphabet’s most valuable product, accounting for more than half of its total revenues.
Despite Google’s dominance, OpenAI’s ChatGPT has the potential to disrupt the previously unassailable search giant. So far, only a little over 15% of consumers use ChatGPT or an equivalent AI tool for search results.
The ability to receive detailed, complex answers to questions via a voice prompt, however, could fundamentally change the search engine model that has predominated since the early days of the internet.
If mass adoption of AI search tools gains traction, Google could be facing meaningful competition for search traffic for the first time in multiple decades.
Though it would be unlikely to happen all at once, it’s possible that the proliferation of tools like ChatGPT could gradually erode Google’s search dominance. This trend could be exacerbated by an ongoing antitrust case against Alphabet that could see parts of the Google ad business sold off. If Google is gradually split up by regulators, it could create an opening for new companies like OpenAI to seize off market share while Alphabet is still dealing with its legal troubles.
Alphabet’s Strengths Still Likely Outweigh the Risks
Despite the risks presented by OpenAI, Alphabet is still an incredibly high-quality company that could dominate the search market for years to come. To begin with, it’s important to understand that the risks presented by AI development haven’t actually started to materialize. So far, Google remains unchallenged as the world’s leading search platform. After multiple decades as the go-to source for searching information, habit alone could keep people turning to Google as a trusted resource.
It’s also worth noting that Alphabet isn’t standing by while AI tools encroach on its territory. Instead, the company is making large AI investments of its own. Its latest model, Gemini 2.5, is in many ways a credible answer to ChatGPT.
AI overviews, now a staple on Google search results pages, are also generating strong engagement among search users. Alphabet’s AI capabilities are also showing real-world results for investors, as they were partially responsible for a year-over-year increase of 14% in Q1 revenue on a constant currency basis.
Alphabet is in the enviable position of having the ability to invest aggressively in AI infrastructure at a time when other companies have to pull back due to its ironclad balance sheet. Alphabet is planning about $75 billion in CapEx this year to continue building out its AI capabilities.
This is possible because Alphabet has over $160 billion in current assets compared to just $10.9 billion in long-term debt. Even with a possible economic downturn coming this year, Alphabet doesn’t seem to be in any danger of having to slow down its AI investments anytime soon.
Looking beyond search and AI, it’s also worth considering Alphabet’s other valuable businesses. Google Cloud, for instance, brought in $12.3 billion in revenue in Q1, up from $9.6 billion a year earlier. Revenue from YouTube ads rose from $8.1 billion to $8.9 billion over the same period.
Though no other business line is nearly as important to Alphabet as Google search, the company is far from being a one-trick pony. Cloud computing, in particular, is likely to remain a crucial and fast-growing part of Alphabet’s business empire for the foreseeable future.
Finally, Alphabet remains incredibly profitable and shows no immediate signs of slowing down in that department. The company’s net margin over the last 12 reported months was 30.9%, closely matched by its 35.2% return on equity and 33.9% return on invested capital. With such strong profitability metrics, the company is in a good position to remain financially healthy and to continue investing in new technologies. Though Alphabet could face some competitive headwinds going forward, the business itself still appears quite attractive as a long-term proposition.
Is Alphabet Still a Safe Investment?
While OpenAI might stir up some competition for Google’s search dominance, there’s no real sign that Alphabet is in trouble, at least not anytime soon. Google is still the undisputed leader in search, and Alphabet is pouring resources into AI to make sure it stays that way. On top of that, it’s a well-run, highly profitable company with massive scale, something a younger player like OpenAI just doesn’t have yet.
Alphabet also has the benefit of trading at a fairly reasonable valuation, something that could help to counterbalance some of its possible risks. At 18.5 times earnings and 5.7 times sales, Alphabet is far from being outrageously priced for a high-growth tech company. Analysts are also projecting around 20.5% of additional upside from GOOG from its current price of $166.05 to a consensus target of about $200.
Overall, Alphabet still looks like a good stock to own both in today’s difficult market and for long-term compounding growth. While OpenAI and other AI startups certainly have the potential to disrupt Google, Alphabet is doing a solid job of staying ahead of the AI field. Taking the company’s other competitive advantages into account, it seems unlikely that Alphabet will face its downfall at the hands of OpenAI.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
