Morningstar

Alphabet: Losing Default Search Status on Samsung Devices May Not Be Significant

Despite increased competition and disruption in the search market from AI, we think Alphabet can maintain its network effect.

The Google sign outside Alphabet Headquarters
Getty via Getty
Securities in This Article
Alphabet Inc Class A
(GOOGL)
Microsoft Corp
(MSFT)
Samsung Electronics Co Ltd
(005930)
Alphabet Inc Class C
(GOOG)

Alphabet Stock at a Glance

  • Fair Value Estimate (USD): 154.00
  • Star Rating: 4 Stars
  • Uncertainty Rating: High
  • Economic Moat: Wide

Alphabet Stock Update

According to The New York Times, Samsung is considering changing the default search engine on its devices from Google to Microsoft’s Bing for the first time in 12 years.

While Google is facing increasing competition and disruption in the online search market, mainly because of the emergence of artificial intelligence, we think it can maintain its network effect moat source. First, we have not seen indications of search market share loss since the release of OpenAI’s ChatGPT (November 2022) and Microsoft’s MSFT AI chat feature in Bing (February 2023). According to Statcounter, Google’s market share has not been affected through April. Plus, even before becoming the default search engine on Samsung devices 12 years ago, Google’s share was around 90% and has remained between 90% and 95%.

Google Can Compete in AI-based Search

Second, while Microsoft may have a first-mover advantage in AI-powered chatbot in search, we think Google has the AI technology expertise to launch competitive AI-based features. As stated in the Times article, Google has already begun to further prioritize AI features and possibly create a new search service. With various large language models at hand, we think Google can improve the Bard chatbot and add more features gradually.

Third, the $3 billion that according to the Times article Google is paying Samsung, has not changed much as several sources have reported in the past that Google was paying Samsung around the same figure in 2017. We think Google likely will increase that amount to stay as the default search on Samsung devices.

Last, the possibility of such a change may help Google in its search case versus the U.S. Department of Justice, which could allow the firm to make more aggressive acquisitions and compete more effectively.

We are maintaining our $154 fair value estimate on Alphabet GOOGL.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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