Alphabet Tumble As Apple Scouts AI Search

Alphabet shares tumble as Apple scouts AI search challengers

Senior Apple executive Eddy Cue tells US court the iPhone maker is assessing up‑and‑coming AI engines for Safari and iOS

Shares in Google’s parent company Alphabet slid sharply on Wednesday after it emerged that Apple is weighing a clutch of artificial‑intelligence search start‑ups as possible alternatives to Google’s long‑standing default position on the iPhone and Mac’s Safari browser.

Alphabet stock was down 9 per cent at one point in New York trading and closed 7.5 per cent lower, erasing roughly $125 billion (£99 billion) from the group’s market value. The sell‑off followed Bloomberg’s report of testimony by Eddy Cue, Apple’s senior vice‑president of services, in a Washington DC antitrust hearing examining potential remedies in the US Department of Justice’s landmark case against Google.

Cue told the federal court that Apple has held preliminary discussions with several generative‑AI search providers, including Silicon Valley newcomers Perplexity and Anthropic, Elon Musk’s xAI and China’s DeepSeek. “We intend to add them to the list,” he said, referring to the menu of search engines Safari users can choose in their settings, though he offered no timetable. Apple, he added, is also studying whether to surface AI‑driven answers directly inside iOS, bypassing any traditional search engine.

Any shift would strike at the heart of a lucrative alliance forged nearly two decades ago. Google pays Apple an estimated $18‑20 billion a year—equivalent to roughly a quarter of Apple’s services revenue—to remain the default search provider on the iPhone, iPad and Mac. The arrangement funnels hundreds of millions of high‑spending users to Google’s advertising‑funded search business; loosening that grip would threaten a sizeable chunk of Alphabet’s cash flow while simultaneously shaving several billion dollars from Apple’s own bottom line.

Those financial stakes are central to the Justice Department’s argument that Google maintains an illegal monopoly by locking up prime real estate—web browsers, mobile operating systems and voice assistants—with rich default‑placement fees that rivals cannot match. In November a federal judge ruled that Google had indeed abused its dominance; the current phase of the case is focused on choosing a remedy. One option under consideration is forcing Google to cede default status or banning the exclusivity payments altogether.

Cue’s disclosures suggest Apple is preparing for that possibility. They also underscore how the generative‑AI boom has lowered the barriers to entry in web search, an industry long thought impregnable. Tools such as OpenAI’s ChatGPT, Perplexity’s answer‑engine and Anthropic’s Claude can synthesise answers from multiple sources, giving users a direct, conversational response rather than a list of links. Microsoft has already grafted an OpenAI model onto Bing, while Google is rolling out its own “Search Generative Experience”.

If Apple were to offer users a carousel of AI search partners—or even run certain queries through its own on‑device large language model—it could erode Google’s share just as quickly as the iPhone maker nudged the market away from Intel chips with its home‑grown M‑series processors. Ben Bajarin at Creative Strategies said investors “have woken up to the risk that Apple holds the keys to Google’s mobile kingdom”. Alphabet derives an estimated 60 per cent of its search traffic from Apple devices.

Still, Apple faces a delicate balancing act. The services arm overseen by Cue is under pressure to show double‑digit growth as hardware sales plateau, and the Google search payment is one of the few pure‑profit cheques it receives. Analysts at Morgan Stanley reckon that walking away from Google entirely would shave two percentage points off Apple’s gross margin—hardly a trivial sacrifice heading into a global consumer slowdown.

For Alphabet the numbers are starker. Cowen calculates that the revenue Google extracts from Safari searches alone exceeds $40 billion a year. Even a partial defection could crimp Alphabet’s earnings by high‑single‑digit percentages, at a time when the company is ploughing billions into its own Gemini generative‑AI suite and wrestling with entrenched cost inflation across its cloud and YouTube units

Beyond the courtroom drama, the manoeuvring highlights the speed at which generative AI is redrawing the competitive map in consumer technology. Apple, whose chief executive Tim Cook conceded last year that the company was “a long way off” launching its own chatbot, is expected to unveil a raft of on‑device AI features at its Worldwide Developers Conference in June—many of them aimed squarely at search. Competitors such as Meta and Amazon are similarly racing to bolt chatbots on to their respective platforms.

Market reaction to Cue’s remarks was swift but not indiscriminate. Apple’s shares dipped just 0.5 per cent, underperforming the broader Nasdaq but avoiding Alphabet’s rout, while Microsoft—which stands to gain if Google loses default status—finished 0.8 per cent higher. Perplexity, Anthropic and xAI are all privately held, though bankers say the first two are fielding approaches from venture investors keen to capitalise on surging demand for “answer engines”.

Whether Apple ultimately ditches Google, adopts a multi‑engine rotation or builds its own AI search layer, analysts agree the days of a single‑provider default look numbered. “The genie is out of the bottle,” said Wedbush’s Dan Ives. “Generative AI makes it feasible to challenge Google in a way that a traditional index‑based search engine couldn’t—and Apple has every incentive to keep its options open.”

Judge Amit Mehta is expected to rule on remedies later this year. Until then, both Silicon Valley giants must prepare for a post‑default world—one where consumers, regulators and restless AI start‑ups will all help decide how the next era of search unfolds.