The death of Google Search?
Is this the end of the road for the biggest search engine leader?
Google being disrupted?
It’s rare to find a company that’s so ingrained in people’s top of minds that it’s being used as a verb.
Instead of saying search this, we say “Google this”.
Such has been the dominance of Google over the past two decades.
But not for the first time, sentiments around the company have turned bad.
Over the past few years, there has been much chatter about Google, and in particular Google Search, being disrupted.
Google’s search dominance is being challenged by AI-driven large language models (LLMs) like ChatGPT, Grok, and Claude.
A recent study showed that more than a quarter of Americans now use AI chatbots instead of search engines.
The AI-driven LLMs are not only faster, giving users instant answers, but the comprehensive and conversational nature in which the response is delivered seems to be the preference for some users.
Rather than a list of links, the AI filters out unnecessary and unrelated results, focusing on exactly what the user wants.
Google search returns a whole list of results, where we have to manually filter the result most relevant to us.
AI search gives a summary, in an easily digestable form.
Try searching something in Grok and you’ll know what I mean.
Google’s Business Performance
Revenue and cash flow from operations continue to grow at a CAGR of >15%.
Google Search, the company’s main revenue generator and the supposedly dying segment, has shown little signs of slowing growth.
Google’s search volume is still growing (not just revenue, but number of searches).
While the company is growing at a decent clip, with the rise of LLMs, the business is becoming more unpredictable.
As predictability decreases, a more conservative valuation has to be applied.
For a discounted cash flow valuation, this may mean applying a higher discount rate.
Google’s share price
There’s no denying that confidence in the company is low right now.
This is reflected in the company’s poor share price performance in spite of its undemanding valuation.
The stock has declined 8.2% year-to-date and 16% from its highs.
Based on the company’s most recent financials, my valuation comes up to around $220.
Good investing comes from having the patience to wait for prices to come down.
My price levels at $162, $154, and $147 have been set.
I get a significant discount when buying at these price levels, giving me a margin of safety in case I am wrong.
Playing the Probabilities
As with life, nothing is 100% certain.
Whether AI eventually replaces Google search is anyone’s guess.
All we can do is play the probabilities, and as of now, there’s a high chance that Google will not die.
Google is a hold for me, and a buy when the price is right (i.e. hits my price levels).