On Wednesday, May 7, 2025, Alphabet Inc. (GOOGL), the parent company of Google, experienced a significant stock decline of approximately 9%, erasing over $80 billion in market capitalization. This drop was primarily triggered by revelations during a U.S. Department of Justice antitrust trial, where Apple executive Eddy Cue testified about a decline in Safari browser searches and Apple’s exploration of AI-powered search alternatives.
Apple’s Shift Towards AI Search Alternatives
Eddy Cue, Apple’s Senior Vice President of Services, disclosed that Apple has been in discussions with AI firms such as Perplexity AI, OpenAI, and Anthropic to integrate AI search functionalities into its Safari browser. This move indicates a potential shift away from traditional search engines like Google’s, which currently holds a lucrative position as the default search engine on Apple devices—a partnership reportedly worth over $20 billion annually.
Cue’s testimony highlighted that searches via Google on Safari declined in April for the first time, attributing this to increased AI usage. While no immediate changes are expected, the possibility of Apple adopting AI-driven search tools poses a significant threat to Google’s dominance in the search market.
Investor Concerns Over AI Investments
In addition to the potential loss of its default search position on Apple devices, Alphabet’s announcement of a substantial increase in capital expenditures further unsettled investors. The company plans to invest approximately $75 billion in 2025, a 29% increase over analyst projections, primarily to enhance its artificial intelligence (AI) infrastructure. This aggressive investment strategy, while aimed at maintaining competitiveness in the AI space, has raised concerns about the efficiency and necessity of such massive expenditures, especially in light of cost-effective AI developments by competitors like China’s DeepSeek.
Slowing Growth in Cloud Services
Alphabet’s cloud division reported a 30% rise in quarterly revenue, which, although substantial, was slower than the 35% growth seen in the prior quarter and fell short of market expectations. This deceleration, coupled with the company’s focus on AI investments, suggests a shift from its traditional capital-light, high-margin search advertising business to a more capital-intensive AI-focused model. Analysts have expressed concerns that this transition may not yield immediate returns, adding to investor apprehension.
Market Reaction and Broader Implications
The combination of potential revenue loss from Apple’s shift in search strategy and the substantial increase in AI-related expenditures led to a significant drop in Alphabet’s stock price. This decline also affected other tech stocks, with Apple’s shares dipping by approximately 2% in reaction to the news.
The developments underscore the rapidly evolving landscape of the tech industry, where companies are increasingly investing in AI technologies to stay competitive. For Alphabet, maintaining its dominance in the search market while effectively managing its AI investments will be crucial in navigating this transitional period.
