As we head into Alphabet's ((GOOGL Quick QuoteGOOGL - Free Report) ) earnings report tomorrow, some of the biggest questions analysts will be asking on the conference call should surround Wiz and NVIDIA and those big plans I discussed in my earlier article.

But there are two more issues burning like a GPU at OpenAI: their ad model in the age of LLMs and their (undesired) spotlight from the DOJ on antitrust action.

It's fair to ask if Google’s advertising model is in jeopardy since Alphabet still generates the majority of its revenue from Search -- specifically, "high-intent queries" where users are actively looking for products, services, or information.

Search-related advertising accounted for nearly 57% of Alphabet's $295 billion in 2024 revenue.

But large language models (LLMs) like ChatGPT, Claude, and Perplexity are beginning to intercept many of those queries on a daily basis, especially the informational ones.

Here’s how that puts pressure on Google...

Loss of Traffic for High-Volume Informational Queries

LLMs excel at answering questions directly for things like:

"What’s the best time to visit Japan?"

"How do I fix a leaking faucet?"

"What are some affordable email marketing tools?"

These types of queries were prime content marketing and SEO battlegrounds -- and Google monetized them via display and text ads around content or in SERPs (Search Engine Results Page). If users skip Google and go straight to an LLM, Google loses:

>The pageview

>The ad impression

>The data about user behavior

Fewer Opportunities for Google Ads

LLMs usually present clean, minimal interfaces. There's no page of 10 blue links with sponsored results at the top and bottom. That means:

>Fewer ad slots per query

>Less click-through potential

>Less ad auction competition, driving lower CPC (cost per click)

Even if Google integrates ads into its own Gemini-powered Search Generative Experience (SGE), user intent and attention are diffused -- it's not as clear whether people are in "buy mode" vs. "just asking a question."

Critical Vulnerability on Search and Ads: The fundamental challenge for Google search is that LLMs are shifting the location of user intent and the surface where discovery happens. Google's ad model is still insanely powerful -- but it’s no longer unshakeable. It seems this is Google's market to lose and Wall Street analysts will be busy re-working their earnings models every week as new data rolls in.

If user behavior shifts dramatically -- especially among younger or more tech-savvy users -- and Google can’t keep those queries on its own surfaces, it'll lose ad dollars from large spenders who use tenaciously use data to track attribution. Not all at once, but steadily over time.

Google Faces Pressure to Evolve -- Without Killing Cash Cow

Google is in a tightrope situation:

If they go all-in on AI answers in search (SGE), they risk reducing ad revenue per query.

If they move too slowly, they risk losing users to LLMs that give better answers, faster.

I still use Google search for "informational" queries. And I use Gemini for more-detailed background, especially on my phone when I'm "mobile" because I can use voice and get voice in return.

Since Google is sticky for me, the more they can integrate Workspace, Drive, Suite, Search, and Gemini, the more opportunities they have to put ads in front of me.

Right now, they’re trying to thread the needle by:

>Testing SGE with ads integrated

>Encouraging AI-based ad creation tools for advertisers

>Enhancing YouTube and Shopping surfaces where LLMs can’t easily compete yet
 

Google in Antitrust Jeopardy

The antitrust issues are probably over my head. So I thought it would help if we pay attention to a competitive threat to Google who thinks the government does not have a strong case. Perplexity CEO Aravind Srinivas posted this on X recently...

Perplexity has been asked to testify in the Google DOJ case. Our core points:

1. Google should not be broken up. Chrome should remain within and continue to be run by Google. Google deserves a lot of credit for open-sourcing Chromium, which powers Microsoft's Edge and will also power Perplexity's Comet. Chrome has become the dominant browser due to incredible execution quality at the scale of billions of users.

2. Android should become more open to consumer choice. There shouldn't be a tight coupling to the default apps set by Google, and the permission for OEMs to have the Play Store and Maps. Consumers should have the choice to pick who they want as a default search and default voice assistant, and OEMs should be able to offer consumers this choice without having to be blocked by Google on the ability to have the Play Store and other Google apps (Maps, YouTube).

(end of Aravind's two cents)

The ground is shifting in technology as AI surfaces like an earthquake plus a volcano with a tsunami.

While NVIDIA is my favorite company to watch for the tectonics of disruption, Alphabet has recently moved back into my top five.

Stay tuned as I cover the earnings call on Thursday 4/24.

Cooker