By Dan Gallagher

No company can match Google's ability to get artificial intelligence in front of the masses. That's not always enough.

The internet titan spent two hours at the opening of its annual developers conference on Tuesday showcasing its latest AI developments. These include 3-D video calls, real-time language translation and digital assistants that use AI to prepare users for tests or projects. Google is also bringing an "AI mode" to its ubiquitous search engine for U.S. users, which can produce deeper answers to queries, well beyond a sea of links.

Google powers about 90% of the world's searches now, and its Android operating system runs nearly three-quarters of smartphones in use globally, according to data from Statcounter. That, along with other widely used tools, such as Gmail and the Chrome internet browser, create a massive platform for Google to distribute new features and services.

But those add-on services don't always take hold. And Google's breadth still hasn't stopped at least some search users from gravitating toward AI chatbots like ChatGPT and Perplexity. Meanwhile, the federal government is pressing two antitrust cases seeking to break the company up, threatening some of its vital distribution channels.

The twin threats of AI displacement and a forced breakup amount to a new existential risk for the company. The stock of Google's parent, Alphabet, fell Tuesday after its I/O conference keynote and is now down 13% this year. It is the only megacap tech company to have lost market value over the past 12 months.

News Corp, owner of The Wall Street Journal, has a commercial agreement to supply content on Google platforms.

Alphabet is now the cheapest big tech by a significant margin, trading at around 17 times forward earnings, compared with an average of 29 times for its peers. Valuation alone won't win over investors if they remain convinced that government penalties and competition mean Google's best days are behind it. "Until the regulatory dust settles and Alphabet's future search share, particularly in commercial queries, becomes more certain, Alphabet investors remain in this uneasy state," wrote Michael Nathanson of MoffettNathanson in a recent report.

It helps that Google has been here before. The stock was previously at this valuation level in early 2023, after the public launch of ChatGPT and the partnership between OpenAI and Microsoft created the impression that Google was now playing catch-up in AI. Google responded by aggressively launching its own AI features while keeping its core business humming. The company's annual advertising revenue has risen 20% to about $270 billion since ChatGPT's launch, a sign that it remains strong in searches with commercial intent. Google's corporate cloud business -- another distribution point for AI services -- has grown by 45% during that time.

And Google might not actually be running that far behind its new generative-AI competitors. A survey by Morgan Stanley of Americans 16 and up found that 40% of respondents reported in March that they used Google's Gemini at least once a month, which was only 1 percentage point lower than the number saying they used ChatGPT that much.

The same survey, though, found that ChatGPT had a strong edge with the younger crowd, as 68% of 16- to 24-year-olds reported using the chatbot, compared with 46% for Gemini. That is valuable mindshare that Google still needs to win over. The company that has long maintained search dominance knows all too well how internet habits can be hard to break.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

May 21, 2025 05:30 ET (09:30 GMT)

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