Citi believes ChatGPT won't replace Google's search engine just yet. Is it worth buying the stock?

OpenAI's chatbot hasn't yet knocked Google off its Internet search leadership position, but the popularity of "alternative search scenarios" among young people is growing. That's the conclusion Citi Research analysts came to after surveying several thousand users, writes Barron's. However, the bank reiterated a "buy" recommendation on shares of Google's holding company, Alphabet, expecting them to rise 14%. Investor concerns about Google's search competing with ChatGPT intensified after it became known about OpenAI's plans to release its own browser.

Analysts at Citi Research, led by Ronald Josi, on Friday reiterated a "buy" recommendation on shares of Google's parent company Alphabet. They also maintained the $203 target, set in June. That target price implies the stock is up 14.3% from Thursday's closing price.

Citi analysts surveyed 2,400 Google Search users in the U.S. and concluded that the search engine "remains a key element of most users' Internet activity" across all age categories. The bank's report describes Barron's.

Nevertheless, the bank recorded an increase in the popularity of "alternative search scenarios" among young people. In particular, this group of users began to use ChatGPT, Facebook and Instagram more frequently for searches. According to Citi analysts, it is ChatGPT that has become the "starting page" on the Internet for young users. Google's share as an "entry point" is growing among the surveyed audience in correlation with their age. Here's what the Citi survey showed:

- 85% of respondents chose Google as their "primary search engine."

- 72% as the first site they go to to find something.

- 88% of users between the ages of 41 and 55 named Google as their primary search engine.

- But only 83% of users between the ages of 14 and 24 turn to Google search.

Citi estimates that AI agents are still being used more for "research purposes," while Google Search still leads in commercial search - shopping was the most popular usage scenario among those surveyed. The bank also notes that services such as Google Shopping and Google Travel continue to show growth, Barron's writes.

The survey data shows that Google Search's position remains strong so far, and that's good news for Alphabet, Citi notes. Revenues from Google Search and related services accounted for more than half of the company's total revenue in the last quarter.

"We believe the environment in the online advertising market, including search and YouTube advertising, remains healthy," the analysts wrote.

Google's search market share remains at 90 percent, and the company's AI features are gaining popularity: for example, its AI Overviews feature, which shows a brief summary of a search query at the top of a page, is used by 1.5 billion monthly active users, wrote Jefferies analyst Brent Till on June 27.

OpenAI has also introduced a shopping feature via ChatGPT, expanding the chatbot's search functionality. In addition, OpenAI is close to releasing an AI-enabled web browser that will challenge Alphabet, Reuters wrote on July 9. The browser is scheduled to launch in the coming weeks, the agency's sources said. It will give OpenAI easier access to a key source of Google's success - user data.

If the OpenAI browser is adopted by even a fraction of ChatGPT's 500 million weekly users, its release could put pressure on a key element of rival Google's advertising business. The Chrome browser is an important pillar of Alphabet's advertising model, accounting for nearly three-quarters of its revenue: it collects user data for more efficient and profitable ad targeting, and redirects search traffic to Google's own default system, Reuters writes.

The agency's sources said OpenAI's browser is designed to keep part of the user experience inside a chat interface similar to ChatGPT instead of navigating to websites. The browser release is an element of OpenAI's broader strategy to bring its services into consumers' personal and work lives, Reuters' sources said. OpenAI declined to comment.

ChatGPT search poses a direct threat to Google and other traditional search engines. Google could lose to OpenAI's chatbot the way Kodak, the famed maker of film cameras, once lost to digital cameras, Melius Research analysts warned in April.

This article was AI-translated and verified by a human editor