Why Google's Next AI Move Could Be Even More Important Than Its Search Engine Dominance

It's hard to imagine Google topping the search engine that made it famous 27 years ago, but the company's next artificial intelligence (AI) move may be more consequential than the advent of online search.

Google's parent company, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), has a few AI initiatives that can accelerate revenue growth, and if one of them gains momentum, it can unlock substantial value for long-term investors.

Disrupt before getting disrupted

Image source: Getty Images.

Before understanding why Google's AI moves may be more important than its search engine, investors should consider how bleak things looked for Google early in the AI race.

Google's entrance was pretty bumpy, with its AI model giving incorrect answers and receiving plenty of public scrutiny. Then, investors panicked when Google's search share fell below 90% for the first time in more than a decade. Those worries aren't as prevalent now, with the search engine leader reclaiming its lost ground a few months later, but the news put investors and Google executives on notice.

Google continues to invest heavily in AI for its search engine for growth, but also for its survival. It has a big lead, but continued innovations are necessary to keep up with ChatGPT, Grok, and other competitors.

Google isn't getting complacent as a search engine leader. Business executives remember how Eastman Kodak didn't adapt to smartphone cameras and ultimately had to file for bankruptcy protection in 2012. Eastman Kodak had previously looked invincible.

Google isn't falling for that type of hubris, but the tech giant can't rely on its search engine and online ads forever. Accelerated growth rates have to come from other segments, especially as other AI models bite into Google's search market share.

Taking the battle beyond search and into the cloud

When most people think about Google, they think about the search engine, but the next wave of growth is coming from Google Cloud. This platform lets companies build digital AI infrastructure, and it even has ChatGPT as a customer.

Companies that need computing bandwidth and AI tools have been turning to Google Cloud. This part of Google's business increased by 34% year over year in the third quarter. That growth outpaced Google Services' 14% growth rate, which includes Google and YouTube ads.

Once a company uses Google Cloud, it's very hard to leave. Customers would have to retrain their staff and incur other inconveniences if they went from Google Cloud to a competitor. These switching costs and Google's quality platform are part of the reason why it retains customers and delivers enticing revenue numbers.

Google's fastest-growing segment is riding AI tailwinds, and if those winds continue to blow, Google Cloud revenue should gradually make up a higher percentage of total revenue. That can result in accelerated growth rates for the company as a whole.

Physical AI might be the company's biggest opportunity

Although Google has integrated AI into its search results and created a high-caliber cloud platform, those may not even be the company's most consequential AI moves.

Physical AI may be Google's golden goose, and subsidiary Waymo gives investors a glimpse into its future. Waymo produces autonomous vehicles that have been used in some major cities and highways.

These driverless, AI-powered cars are an example of physical AI. As Waymo vehicles become more mainstream, they can disrupt Uber's $170 billion business model. Uber recognizes the risk and recently announced its own autonomous vehicle fleet.

However, Google's physical AI opportunities aren't limited to Waymo. The company is also developing AI software for robots through Gemini Robotics models.

Google changed every industry with its search engine, and its physical AI initiatives may have the same effect. Waymo is already challenging companies like Uber and Tesla to ramp up their autonomous vehicle investments. AI-powered robots are also a compelling long-term opportunity.

Google is an AI company

Capitalizing on physical AI may be more important to Google than its search engine dominance. Google CEO Sundar Pichai even hinted at this in 2018, when he said that AI is "more profound than ... electricity or fire."

Google is turning from a search engine company to an AI stock. While search engine dominance has been critical for Google's success, AI initiatives can power up the company's next growth chapters.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.