Crisis is also an opportunity! Morgan Stanley: The threat of AI to search has been exaggerated, the best bottom-fishing opportunity for Alphabet has arrived!

Apple's browser search volume has declined for the first time in 20 years, raising concerns about "AI squeezing traditional search." Google fell more than 7% overnight, while Morgan Stanley believes "crisis is also an opportunity."

According to news from the Chase Wind Trading Desk, Morgan Stanley pointed out in its latest report on May 8 that the current panic sentiment has created an excellent buying opportunity for long-term investors. With its continuous innovation in the AI field and a large user base, Google is expected to continue consolidating its market leadership in the future.

Morgan Stanley stated in the report that despite increasing market concerns about Google's declining search business share, GOOGL's valuation has now reached a low point, making it an attractive buying opportunity. It reiterates an "Overweight" rating on Alphabet (GOOGL), with a target price of $185, representing a 22% upside from the current stock price.

The report believes that the decline in Safari search queries is not a threat but a signal of the end of the browser era. A decline in Google's paid clicks does not equate to a loss of market share, while also emphasizing Google's technological leadership in the GAI field and its future growth potential. Investors should pay attention to key catalysts in May and June, including the Google I/O Developer Conference, Google Marketing Live Conference, and Apple's Worldwide Developers Conference (WWDC).

Search Market Rumors Exaggerated: Decline in Paid Clicks Does Not Equal Loss of Market Share

Concerns that Google's search market share is being eroded by generative AI tools like ChatGPT have been overstated. Morgan Stanley analyst Brian Nowak stated that although the growth of paid clicks slowed to 2% in the first quarter, this should not be interpreted as a signal that Google is losing its dominance in commercial traffic.

According to Morgan Stanley's survey, there is currently no evidence that commercial search behavior is drifting away from Google. In fact, Google has begun to confirm that its commercial queries are growing. In contrast, potential AI threats like ChatGPT, Meta AI, or Perplexity have not yet established a sufficiently large user base or provided attractive enough products to lure commercial queries away from Google.

The decline in click-through rates may partly be due to Google's AI-based search features (such as Overviews, AI Mode, Gemini, and more personalized shopping links) improving the conversion rate per click. This is somewhat similar to META, which is improving the relevance and conversion rates of ads, leading to a slowdown in ad impressions growth (but revenue growth remains very healthy).

The Decline in Safari Search Queries is Not a Threat, but a Signal of the End of the Browser Era

Recently, reports have indicated that search volume on the Safari browser has declined for the first time, raising concerns about Google's search business facing more AI disruption. [According to Guo Mingqi's statement](https://wallstreetcn.com/articles/3746651? keyword=Yale Tiger), Google is facing a "Yahoo moment" of life and death: Yahoo's advertising business started in 1995, while Google's advertising business began in 2000, with the former's advertising business starting to decline in 2008.

However, this trend is more likely a signal that the browser era is about to be replaced, rather than evidence of a decline in Google's search market share. Morgan Stanley previously predicted that generative AI-supported agent products would emerge, leading to more personalized multimodal digital interfaces... which would effectively replace browsers. Although this trend has not fully materialized, signs are already emerging.

Statcounter data shows that Safari lost about 75 basis points of market share to Chrome in April (having lost about 85 basis points in March). More importantly, the usage of Google apps on iOS continues to grow, indicating that the challenge may reflect users shifting from browsers to apps, rather than moving away from Google Search itself.

Google also responded through its blog, pointing out that its overall search query volume continues to grow, with queries from Apple devices and platforms also increasing. This shows that Google is adopting a more proactive communication strategy while accelerating product releases (having announced several model updates before the I/O developer conference).

The Key to Re-rating: Mass Promotion of AI Products is the Way Forward

For Google to enhance its valuation, the key lies in launching more innovative generative AI products to its vast user base. Morgan Stanley believes that in the era of generative AI/LLM, the value of tech platforms with extensive distribution capabilities and first-party data is on the rise.

Google has 15 products with over 500 million monthly active users, and 7 user groups with over 2 billion monthly active users. Additionally, Google possesses several specific datasets in vertical fields, such as Google Shopping Graph, which contains 45 billion product listings and is updated 2 billion times per hour.

While Google has indeed launched more products recently (the Gemini app now has 350 million monthly active users, expanded the Overviews feature, added AI modes to search, developed several leading models, etc.), investors are eager to see the next generation of products (possibly agent-type products) launched more quickly and fully deployed to the entire user base (not just paid subscribers).

Three Catalytic Events Will Ignite Stock Prices in May-June

Morgan Stanley stated: Investors should closely monitor the following three key dates, which are likely to become important catalysts for Google's stock price:

1. Google I/O Developer Conference (May 20-21): Google will showcase its latest product innovations and upcoming products at the annual developer conference. It is expected that Google will announce new developments around AI Overviews and enhanced search functionalities to fend off competitive threats
2. Google Marketing Live (May 21): At this annual conference, Google will showcase the latest advertising innovations in its suite of applications/products. Google may announce additional features for its Performance Max advertising tool suite and may share further updates on AI Overview ads and their profitability.
3. Apple WWDC Developer Conference (June 9-13): Apple will present its latest software advancements at the annual Worldwide Developers Conference. It is expected that Apple will announce its latest AI-related product releases and integrations with third parties, with the industry focusing on its deep integration with Google, which has been hinted at by the media.

Additionally, Morgan Stanley maintains an "Overweight" rating on Google, with a target price of $185, representing a 22% upside from the current stock price.

In the most optimistic scenario, Google's stock price could reach $230, an increase of 51.94%. This forecast is based on better cost control and stock buybacks driving up valuations. Online advertising spending is expected to accelerate growth in 2025, with Google continuing to capture search advertising market share. New AI products are expected to contribute incrementally to both the top and bottom lines, rather than cannibalizing the core search business.

In the most pessimistic scenario, the stock price could drop to $125, a decrease of 17.43%. This situation assumes that global advertising growth further slows, putting pressure on profit margins. Search advertising growth is expected to decelerate, leading to further reductions in advertising spending. At the same time, cost control fails to materialize, resulting in margin expansion and adjusted EBITDA falling short of expectations. New AI products, due to lower profitability and increased computational intensity, lead to greater-than-expected pressure on margins