OpenAI’s SearchGPT likely to remain an ‘overhang’ on Google in near-term: Wedbush

Last week’s introduction of OpenAI’s search engine is likely to remain an “overhang” on Google (NASDAQ:GOOG) (NASDAQ:GOOGL) shares in the near-term as investors figure out whether it’s a threat, Wedbush said.

“The impact of generative AI on the core search business has been a primary debate among investors over the past 12-18 months,” analyst Scott Devitt wrote in an investor note, adding that Alphabet has tried to alleviate some concerns with the rollout of AI Overviews in the U.S. and issues related to query costs, engagement, and overall user feedback. He reiterated his Outperform rating and $205 price target on the stock.

Google has more than 91% of the search engine market share, according to Statcounter. And while SearchGPT is only being tested by 10,000 users and publishers, OpenAI is just getting started.

“We are committed to a thriving ecosystem of publishers and creators,” OpenAI said in a blog post. “We hope to help users discover publisher sites and experiences, while bringing more choice to search.”

OpenAI is backed by billions of dollars from Microsoft (NASDAQ:MSFT), which recently debuted its own generative AI search functionality.

Long term opportunity?

Though Devitt conceded that SearchGPT is likely to be an issue in the near-term, Google’s search moat is “highly defensible.”

“…[W]e think Alphabet’s moat is highly defensible and the company’s search advancements are underappreciated by the market,” Devitt added. Google’s advantages include its “unmatched breadth” of data to develop and train AI models; its user base; AI-optimized compute infrastructure; access to engineering talent; and track record of monetization.

“We think the advantages of this existing infrastructure are understated and overlooked and we continue to believe Alphabet is best positioned to optimize generative AI search results for usability, monetization, and cost,” Devitt said.