Among the seven “Distinguished Stocks,” Alphabet (GOOGL) (GOOG) stands out as the most affordably priced, with a substantial gap compared to the others, and this trend has persisted for several years now.
The primary concern stems from the belief or apprehension that advanced AI chat systems like ChatGPT might adversely affect Google Search, potentially causing a decrease in Alphabet’s main and most lucrative venture.
Despite some skepticism, Alphabet’s second-quarter financial report unveiled a significant figure that may silence critics. Following this important revelation, keep an eye on Alphabet’s shares as they might be revalued at a higher rate.
4% click growth
In Q2, Alphabet’s earnings from its search and additional sectors expanded nearly 12%, yet the rise in advertising prices is another factor boosting these figures. Critics of Alphabet, however, are focusing on the number of paid clicks, which reveals the level of search activity. Essentially, price hikes in ads might maintain revenue growth, but if the number of paid clicks starts dropping, it could be a warning sign that the search market is being impacted negatively.
During the recent conference call with analysts, Schindler emphasized a significant figure that should put doubters at ease – there was a 4% increase in paid clicks.
| Metric | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 |
|---|---|---|---|---|---|---|
| Google paid clicks growth | 5% | 5% | 5% | 5% | 2% | 4% |
Thankfully, the 4% growth in this quarter represents an improvement from Q1, where there was a slowdown to only 2%. This significant decrease in Q1 had fueled doubts among skeptics who speculated that we were nearing the point where AI chatbots might surpass Google Search.
In May, a significant increase in apprehension was observed when Apple executive Eddie Cue mentioned during an antitrust hearing that for the first time in 22 years, Apple had noticed a decrease in monthly search usage on their Safari browser. It certainly paints a grim picture, doesn’t it?
May brought about heightened concern as Apple executive Eddie Cue reported during an antitrust deposition that for the first time in 22 years, there had been a drop in monthly search activity on their Safari browser at Apple. Doesn’t that sound troubling?
Indeed, I find myself strongly leaning towards Apple’s Safari usage being a significant factor behind that statement. Intriguingly, the 4% growth rebound in Q2 appears to challenge the bearish perspective, at least temporarily. It’s plausible this growth spike might be an unusual positive surge, but it’s equally likely that the first quarter could have experienced a similar anomaly.
After all, the escalation of tariff fears was quite intense starting from late February, which potentially led many advertisers and consumers to tighten their belts in the first quarter. This could have been the reason behind the apparent dip.
Why isn’t search volume declining?
It might not be too unexpected for Alphabet’s bears now, given the recent surge in search volume. This is because the number of ChatGPT users has significantly increased from 300 million in December to an estimated 500 million by March. It’s important to note that ChatGPT is just one among several chatbots experiencing a rise in usage.
At the same time, there’s an increase in paid clicks on search engines. This might be due to several factors.
- Chatbots and search aren’t exactly the same thing. I continue to use both chatbots and Google Search when researching a topic. Obviously, chatbots tend to give more information to open-ended questions, whereas search, as the name implies, is still a very good tool when seeking a particular piece of information. And remember, Google doesn’t monetize every search. Therefore, it’s possible, or even likely, that chatbots may be taking traffic away from some searches at the margins, but not the “monetizable” searches, whereby a customer searches for a specific good or service.
- 20-year habits are hard to break. Google Search has been a virtual monopoly and daily routine for many, and daily routines may be harder to break than some might think.
- Alphabet has been enhancing search in the age of chatbots. Last year, Alphabet enhanced search with AI Overviews meant to give an AI-powered summary to most queries. As time went on, management found a way to monetize AI Overviews on par with traditional search. And in May of this year, Google rolled out “AI mode” in search, which uses Google’s cutting-edge Gemini LLM to give more in-depth answers, pretty much like a traditional chatbot, but within the Google Search interface.
Observing the blend of three factors – Google integrating chatbot functionalities into their search engine, daily search habits persisting globally among billions, and traditional search proving beneficial for commercial queries – it’s not surprising that paid clicks have managed to thrive, even in an era where chatbots are gaining prominence.
Considering that Alphabet’s current valuation is lower compared to its peer companies, it’s quite possible that the stock will increase in value in the short term.
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2025-07-24 15:37