Alphabet shares drop as Apple explores AI search engine alternatives

Apple’s interest in AI search tools like Perplexity threatens Google’s dominance and advertising revenue.

A laptop keyboard and the Apple logo displayed on a phone screen are seen in a multiple exposure illustration taken in Krakow, Poland, on May 6, 2025. Photo by Jakub Porzycki/Nur

By Anna Fadiah and Hayu Andini

Shares in Alphabet, Google’s parent company, plunged by up to 9 percent on Wednesday following revelations that Apple is actively exploring artificial intelligence-based alternatives to Google Search for its Safari browser. This development, unveiled during testimony in a U.S. antitrust hearing, threatens the multibillion-dollar relationship between the two Silicon Valley giants and underscores the growing impact of generative AI on the future of internet search.

Apple eyes AI startups like Perplexity as potential search partners

Eddy Cue, Apple’s senior vice-president of services, told a federal court that the iPhone maker is in discussions with several AI startups, including Perplexity, about integrating their search tools into Apple’s Safari browser. Cue indicated that Apple intends to allow users to select these tools as default search options on iPhones and iPads, though he did not specify a timeline for implementation.

In addition to Perplexity, Cue revealed that Apple is also considering search products from Anthropic, Elon Musk’s xAI, and China-based DeepSeek. These companies represent a new wave of generative AI-powered services that aim to deliver direct, conversational answers to user queries—an approach that differs fundamentally from Google’s traditional search format.

The potential inclusion of these AI search engines in Safari would allow Apple users to bypass Google entirely, marking a significant shift in the default user experience and potentially altering the economics of web search as it stands today.

Multibillion-dollar Google deal at risk

Google currently pays Apple as much as $20 billion annually to remain the default search engine on iOS devices and the Safari browser. This longstanding deal has been a cornerstone of Google’s dominance in the search engine market, securing hundreds of millions of users and generating significant advertising revenue.

However, that lucrative partnership is now under legal and competitive pressure. Cue’s remarks were part of a wider antitrust proceeding following the U.S. Department of Justice’s landmark victory against Google in 2023. The federal judge overseeing the case ruled that Google maintained an illegal monopoly by locking in default search agreements with device manufacturers and carriers, including Apple.

If the antitrust ruling results in the dissolution of the Google-Apple agreement, both companies could face major consequences. Apple, for one, stands to lose billions in annual revenue, while Google risks a sharp decline in market share and advertising income.

Alphabet stock tumbles amid investor anxiety

Alphabet shares closed down 7.5 percent in New York, following intraday losses of nearly 9 percent. Apple shares also dipped by 1.1 percent, reflecting market unease over the potential impact on both companies' earnings. The sell-off followed an earlier Bloomberg report detailing Cue’s testimony and Apple's AI strategy shift.

The market reaction underscores investor concerns about the viability of Google’s core business model in a future increasingly shaped by generative AI. Colin Sebastian, a technology analyst at Baird, noted that while competitors may offer compelling AI-based search tools, they still face significant hurdles in replicating Google’s dominance in digital advertising.

“The market reaction highlights investor jitters over the impact of conversational AI apps on Google’s traditional search business, which is the company’s financial workhorse,” Sebastian wrote in a note to clients. “What we believe is less appreciated is the challenge in building an advertising business on top of search and AI. It could be years before competitors match Google’s capabilities in the advertising market.”

AI changes the search game

Apple’s move to embrace AI-powered search tools comes amid growing competition in the generative AI space, where companies are racing to redefine how people find and interact with information online. Unlike Google’s link-based results, new AI tools deliver detailed, natural-language answers backed by citations, offering a more intuitive and engaging user experience.

In recent months, Apple has introduced several AI-driven features, including integration of OpenAI’s ChatGPT into Siri. However, the company has also faced delays in rolling out broader AI upgrades to its voice assistant, sparking concerns among some analysts that it is falling behind Google, Amazon, and Microsoft in the AI arms race.

Despite these concerns, Apple’s latest strategy suggests it sees a future in which users are no longer bound to a single default search provider—and that AI could unlock a more competitive and user-centric ecosystem.

Google adapts to growing AI threat

In response to the rise of generative AI, Google has also upgraded its own search engine, blending traditional web links with AI-generated content in what it calls “Search Generative Experience.” This hybrid model is designed to retain users and defend its advertising empire, even as newer AI competitors emerge.

Yet even with these upgrades, the threat posed by Apple’s potential shift remains significant. If millions of iPhone users begin experimenting with Perplexity or other alternatives, it could accelerate user migration away from Google’s search platform and force a rethink of how digital advertising is monetized.

Furthermore, the timing of Apple’s exploration—coming on the heels of Google’s antitrust loss—may offer the company a legal opening to loosen its ties with the search giant without inviting additional scrutiny.

A shake-up in search is underway

What was once an unchallenged alliance between Apple and Google is now being tested by technological disruption and legal scrutiny. With Apple poised to offer new AI search tools to its vast user base, Alphabet faces a future in which its dominance in web search—and the lucrative ad dollars that come with it—may no longer be guaranteed.

For investors, consumers, and regulators alike, the unfolding drama between two of the world’s biggest tech firms could signal the beginning of a new era for how search works—and who controls it.