This past week was a big win for the Google bears, but we’re sticking with our bullish bet on Alphabet stock.

There’s little doubt that Google Search is being disrupted—it’s a question of extent and timing.

The company’s shares have dropped 5.9% this week after Apple‘s senior vice president of services, Eddy Cue, said Google Search volumes on its Safari browsers declined in April for the first time in court testimony Wednesday. He cited the rise of artificial-intelligence chatbots, including Perplexity, Anthropic, and, of course, ChatGPT, for the slowdown. While he was at it, he also suggested that peoplemight not need an iPhone in 10 years.

For the skeptics, Cue’s testimony would seem to confirm the main crux of their argument: Google’s dominance of search, which accounts for more than half of Alphabet’s revenue, is being eroded by AI, and there’s not much the company can do about it. “Take a cue from Eddy,” writes Melius analyst Ben Reitzes, who previously argued that Alphabet could become the new Kodak. “Just trust your eyes and ears, people are going to ChatGPT (and others) for search-equivalent queries more and more.”

The burden of proof now rests on Alphabet, and the company immediately took issue with the testimony and the conclusions drawn from it. It said that the number of search queries was still growing, and that users are “accessing it for new things and in new ways.” Some evidence suggests the company does have a point. Evercore ISI analyst Mark Mahaney notes that while search growth has slowed, search revenue has grown between 11% and 15% for the past seven quarters. “Reports of search’s death would seem greatly exaggerated,” he writes.

Still, there’s little doubt that Google Search is being disrupted—it’s a question of extent and timing. When Barron’s made its bullish call in November, we argued that the company would be able to survive both disruption to its search business and government lawsuits, which have been harsher than we expected. Google has even disrupted its own search business with AI Overview—the AI-generated summaries that now have more than 1.5 billion users a month, according to the company—and Gemini, which has 350 million users. 

That’s not great news—users see ads on an AI Overview just 5% of the time versus 20% for traditional search, says New Street Research analyst Dan Salmon. But the company is exploring new ways of generating revenue from AI, including by putting ads in Google Lens, which uses AI to provide information about what’s in a photo. This past Tuesday, it announced AI Max, a service that uses artificial intelligence to get the right message in front of customers at the right time.

“AI Max does not change the user/behavior competition calculus much today, but it has big implications for how Alphabet can monetize the queries it captures, and that ultimately could impact user experience,” Salmon explains. Google should get a chance to show off these tools and more at its O/I conference on May 20-21. 

Alphabet is also far more than search. YouTube, combined with Google One, has 270 million subscribers and would likely be rising if it were a stand-alone stock given Netflix’s 29% gain since the Nasdaq Composite’s February peak. What’s more, Waymo, Alphabet’s self-driving car company, went from completing 150,000 paid driverless cab rides a week late last year to 250,000 rides by April. Both have the potential to provide a big revenue boost in the years to come. 

Alphabet shares, at 16.8 times 12-month forward earnings, are now even cheaper than the 18.6 times when we made our pick, and still below its Big Tech competitors— Amazon.com, Apple, Meta Platforms, Microsoft, and Nvidia—which trade for 28 times on average, and the S&P 500, which fetches closer to 21 times. It’s easy to fall in love when a cheap stock gets cheaper, but it also raises the question of whether it has become a “value trap.” 

We don’t think so. The threat of a value trap developing can be mitigated somewhat by capital returns—Alphabet management announced a $70 billion share buyback on April 24—but mostly by the company’s ability to iterate and innovate with its new products. Given how fast things are changing, there are sure to be more days like Wednesday in the future. The stock, however, should still be a strong performer for years to come.