Google's rivalry with OpenAI just got more heated as a new threat to search emerges

MW Google's rivalry with OpenAI just got more heated as a new threat to search emerges

By Christine Ji

ChatGPT Pulse sends users proactive, personalized recommendations and poses a new threat to the search industry that could challenge Google's dominance

OpenAI's new Pulse feature leverages user data and integrated apps to proactively provide deeply personal recommendations.

Alphabet Inc. has swiftly transitioned from artificial-intelligence loser to winner in the eyes of Wall Street, with investors showing fresh appreciation for the company's AI capabilities and its ability to stay relevant in the era of ChatGPT.

The newfound optimism translated into a 41% rally for Alphabet's stock $(GOOG)$ $(GOOGL)$ since the start of July. But Google Search might not be "out of the woods" yet, thanks to a new threat from OpenAI, according to Melius Research analyst Ben Reitzes.

Last week, OpenAI introduced ChatGPT "Pulse," which uses the information users share with the chatbot to proactively research and deliver personalized recommendations every morning. It can also access data from integrated apps such as Gmail and Google Calendar to enhance its recommendations. Pulse is currently available to Pro users, with the intention of being rolled out to all ChatGPT users eventually, according to OpenAI.

The launch of Pulse is a sign that OpenAI is moving into the digital-ad market, and the feature could "cannibalize" a part of the search market, Reitzes wrote in a Monday note.

"Make no mistake, Sam Altman has to launch ads," Reitzes added. OpenAI is planning for over $1 trillion in data center buildouts in the coming years. "The only way you can fund this spend (and raise the money too) is by having a great plan to sell ads to most of the 800mm weekly active users, complementing the current subscription offerings," Reitzes wrote.

Digital advertising has emerged as an early monetization strategy for AI technologies, with Google and Meta Platforms Inc. (META) using the technology to optimize ad campaigns through more accurate targeting and measurement and drive deeper user engagement. As a result, OpenAI seems to be leaning into expanding its ad business. In May, OpenAI appointed Fidji Simo as the chief executive of applications. Simo was previously the CEO of Instacart, where she helped grow its ad business. Last week, Alex Heath of Sources reported that Simo had been meeting with potential candidates to lead a new monetization team that includes ads.

If OpenAI can scale its ad business, it could become a serious cash cow, according to Reitzes. ChatGPT's share of the search market is around 20% of Google's, which could translate to over $40 billion in annual ad revenue in the $800 billion digital ad market.

Read on: Meta's 'gravity-defying' growth means it's getting closer to this intriguing milestone

There's room for OpenAI's ad business to grow even more further down the road: "Ads (and related commissions) in the neighborhood of Meta's $200+ billion run rate are possible and could propel OpenAI revenue into the hundreds of billions - which just has to happen," Reitzes wrote.

Investors had begun to dismiss the threat of AI chatbots to Google Search in recent months due to the rising popularity of Google's Gemini and the strong performance of its commercial search features. As a result, Alphabet has become the second-best "Magnificent Seven" stock in 2025, trailing Nvidia Corp. (NVDA). MoffettNathanson analyst Michael Nathanson believes that Google could actually beat out Nvidia and become the world's most valuable company due to its continued leadership in Search and cloud computing.

Read: Can Google overtake Nvidia as the world's most valuable company? Here's why that's not so crazy.

However, Reitzes said Google's Search dominance is not as airtight as it seems. Last quarter, investors were pleased that Google was able to raise the prices it charged for ads by increasing the cost per click. But with the entry of Pulse, it's hard to conceive that Google could continue to raise prices with new competition in the advertising market. OpenAI's Pulse could also completely disrupt legacy advertising pricing methods.

Reitzes acknowledged that Google has several solid business lines, including its Search, YouTube, Cloud, and Waymo segments. But investors shouldn't take for granted that Google will remain the de facto search leader. Given that Search accounts for 85% of Google's gross profit, even a booming cloud computing business won't be able to compensate for losing Search leadership if that were to happen.

Reitzes gives Google a hold rating with a price target of $255.

-Christine Ji

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September 29, 2025 11:27 ET (15:27 GMT)

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