Despite Alphabet’s AI event flop — remember, Google dominates search for now. That’s what matters

Alphabet (GOOGL) on Wednesday unveiled new features on its search and map products, enabled by artificial intelligence, just one day after Microsoft (MSFT) rolled out a similar strategy for its search engine. While Microsoft’s new AI capabilities could take some market share from Alphabet, Google is still the unshakable leader in search. In a live-streamed event from Paris on Wednesday, Alphabet showcased how its products are using AI to make its search engine more “natural and intuitive” for users. During the event, Alphabet offered a demo of Bard, the company’s new experimental conversational AI service, powered by Google’s Language Model for Dialogue applications, or LaMDA, which rolled out earlier this week. Bard — Google’s answer to OpenAI’s viral sensation, ChatGPT — provides high-quality responses to user inquiries from information on the web. Alphabet said Bard will be open to the public in the coming weeks –but for now, it’s being tested by a select few users for feedback. Alphabet also showed AI-enabled capabilities to Google Maps and Google Lens, allowing users to search for images from their phone’s camera. This event came on the heels of Club holding Microsoft’s announcement of AI-powered updates on its search engine, Bing, that will generate more in-depth responses to user questions. Microsoft has a major stake in OpenAI and hosts ChatGPT on its Azure cloud. Analysts say Microsoft’s AI aspirations could be a huge disruption to Google’s core search business. “Google was got caught flatfooted,” said Mark Mahaney, an analyst at Evercore ISI, in an interview with CNBC on Wednesday. Alphabet, who has been working on AI development for many years ultimately “got beat to the market by Microsoft,” he said. Alphabet shares traded 8% lower, reflecting investor disappointment with Bard and Google’s AI demo. To make matters worse, there were reports about Bard offering the incorrect description in a promotional video. GOOGL MSFT 1Y mountain Alphabet vs. Microsoft 1-year performance Microsoft’s new features are expected to pose a threat to Google, currently the market share leader in search, and where almost all its revenue and profits come from. Looking at Alphabet’s total revenue of $76.05 billion during the fourth quarter , about 57% came from Google Search & Other. But data from Statcounter shows Google accounts for 93% of search engine market share in all platforms including desktop, tablet and mobile, overshadowing Bing’s 3% market share. Brent Thill, an analyst at Jefferies, told CNBC, “Google doesn’t have a lot to worry about.” He added, “I don’t believe they are going to put a dent into Google’s business … getting individuals to switch over from Google to Bing is going to be a tough one.” The reason, he argued, is Bing’s search experience is still not up to par with Google. At the same time, Thill said Microsoft will be successful in taking one point of market share, which is equivalent to $2 billion in revenue. “There’s an opportunity over time to have another engine of growth,” he said of Microsoft. Thill said he would be a buyer on Alphabet here, something we don’t agree with right now at the Club. We’re also worried about the government’s antitrust lawsuit over Google’s online advertising practices. Bottom line It appears that Alphabet has been caught off guard by Microsoft’s recent AI announcement and decided to up its timeline on the release of its AI-powered products. Alphabet, whose Google services segment includes search, makes a huge amount of money on online ads. As shareholders of the tech stock, we wouldn’t want to see its search business get hurt. But since Google has been researching AI for a long time, it probably has more AI projects in the pipeline that can compete with the industry. We understand why Alphabet shares fell. Any risk to market share, even if it’s a few percentage points, poses challenges. In an economy where ad budgets have shrunk, shifts in spending can become more noticeable. But Google search, the preferred platform for users, still has the edge with advertisers over Microsoft’s Bing. This new battle for Search isn’t going away anytime soon, though, so we will monitor it. Taking a broader view into the AI arms race, the clear winner is chipmaker and Club holding Nvidia (NVDA), which provides the backbone that powers AI technologies. (Jim Cramer’s Charitable Trust is long GOOGL, MSFT and NVDA. See here for a full list of the stocks.) “As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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