Why Alphabet's AI Strategy Could Backfire

Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) has transformed artificial intelligence (AI) from a threat into a huge growth opportunity for its business. The market initially overreacted, believing that AI would hurt Alphabet's business and diminish the need for Google Search. Instead, however, Alphabet has incorporated AI into its results with AI overviews providing users with quicker access to answers.

The strategy has worked tremendously well, with Alphabet's revenue continuing to soar even as use of AI chatbots has increased. But while it's been effective thus far, it does come with significant risks and could end up backfiring.

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It's still the wild west out there for AI

Whenever there's a new technology, it takes a while for regulators and the rest of the world to catch up. AI chatbots have been trained, controversially, on copyrighted content and on all sorts of data and information they perhaps shouldn't have had access to. Alphabet has reached agreements with sites to train its AI on their data, including with Reddit, but whether that will prove to be sufficient is debatable, especially if content producers experience significant losses in search traffic, and thus ad revenue and subscriptions.

There are a couple of potentially problematic issues for Alphabet here. First, publishers may end up blocking content from AI chatbots (and many have already gone this route). If that were to happen on a wide scale, Alphabet's Gemini and other chatbots would be limited going forward, potentially becoming sources of stale, outdated information. Secondly, there's the possible antitrust risk that it creates. Last year, Penske Media, which owns Rolling Stone, filed a lawsuit against Google over AI-generated summaries.

Either one of these issues could cause problems for Alphabet's AI strategy, potentially even leading to greater competition down the road, from search engines that work more closely with content producers and publishers.

Alphabet's adaptability is a huge reason why the stock is an excellent long-term buy

I do think, over time, Google Search will change to adapt to the evolution of AI, as the status quo doesn't seem sustainable: websites are experiencing significant declines in traffic while AI queries are rising. If major websites shut down due to declining traffic, AI could conceivably have no new data to pull from. It's an extreme scenario, but it's also why I don't think the current situation is tenable.

Regardless of what happens, one thing Alphabet has shown is its high adaptability. Due to its strong assets and deep financial resources, it can and will adapt to changing industry conditions, which is why it can make for an excellent long-term investment to hang on to. While some AI stocks may not survive in the long run, Alphabet is among the safer options for investors to consider.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Reddit. The Motley Fool has a disclosure policy.