How AI is Changing User Internet Habits and Undermining Search and Advertising Business Models — Implications for Tech Giants’ Stocks
Fundamental Analysis of Changes in the Technology Market
A new wave of digital transformation, driven by rapid innovations in the field of artificial intelligence (AI), is fundamentally altering user behavior online. Algorithms and language models are now capable of engaging in dialogue, generating content, and completing tasks previously requiring human involvement. These shifts in technology are already influencing established consumption models of online services and information.
Consequently, the economic foundations of internet business are changing: the transformation of user preferences threatens traditional revenue sources for companies like Google and Meta. What was once a reliable engine for profit growth now requires a reassessment. Both institutional and private investors are closely monitoring how corporations adapt to these new conditions, as this impacts their valuation in the market and the effectiveness of investments in their stocks over the long term.
AI and the Evolution of Internet Habits
The emergence of accessible AI systems has changed how people search and consume information online. Instead of manually browsing dozens of websites, many users prefer to receive instant answers from a smart chatbot or voice assistant. Audience behavior online is evolving under the influence of new possibilities:
- Conversational Search. Users are increasingly asking questions to AI assistants (e.g., in chats) rather than entering keywords into traditional search engines. The conversational format simplifies the retrieval of complex information and saves time.
- Personalized Content. Powerful algorithms of recommendation systems curate news, products, and entertainment tailored to individual tastes. A personalized feed, shaped by AI, reduces the need for users to seek new content actively online.
- Routine Automation. AI tools take over many mundane online tasks, from filtering emails to scheduling and text editor suggestions. This increases work efficiency and alters how users allocate their time online.
Thus, AI technologies are gradually permeating all aspects of online experiences. Users are getting accustomed to internet services anticipating their needs and responding proactively to requests. This evolution of internet habits sets a new standard of convenience that companies must adapt to quickly.
The Traditional Search and Advertising Model Under Threat
The shift in user behavior directly impacts the traditional business model of internet search and advertising. Historically, search engines earned the majority of their revenue from advertising: companies paid for impressions and clicks, attracting traffic to their websites. However, if answers to queries are provided directly on the results page using AI, users are less likely to click on links. Many search sessions now conclude on the search engine itself, without leading audiences to advertisers’ websites.
This trend, known as “clickless search,” is gaining momentum. When AI-generated answers are provided, most users are satisfied with this information and do not click further. This calls into question the effectiveness of traditional pay-per-click advertising. Advertisers are beginning to reevaluate budgets as they see a decrease in traffic to their resources. Moreover, integrating AI into search requires significant computational resources, increasing the costs of the services.
Competition is also intensifying: where Google's dominance in search seemed unquestionable, users can now easily switch to alternative AI platforms. Additionally, there has already been a diversion of some advertising budgets to other channels—such as direct advertising on e-commerce platforms like Amazon. Google's share of the search advertising market is expected to decline as advertisers diversify their channels. Collectively, these factors undermine the previous high-margin online advertising model. Outdated approaches are becoming less effective, raising the question for the industry: how to monetize user attention in the age of AI?
Google: Fighting for Core Business
For Google (Alphabet), the ongoing changes present an existential challenge. Years of revenue growth have been driven by dominance in search and related advertising. Now, this core business is under threat. Users are starting to search for information differently, and competitors in the form of AI services are capturing part of Google’s audience attention. Consequently, the flow of advertising dollars is at risk of shrinking.
Google has responded to the challenge with unprecedented investments in its AI developments. The company is rapidly integrating neural network models into search—from improving natural language understanding to launching generative response modes (e.g., the Search Generative Experience project). The strategy of “cannibalizing itself before competitors do” has become a necessity for Google. Management has indicated a willingness to integrate AI solutions even at the cost of restructuring established monetization processes, as the alternative—losing audience—poses an even graver threat.
Investors, however, have responded to this situation with mixed feelings. On one hand, Google continues to generate enormous cash flows: advertising revenue in recent reporting periods has continued to grow at double-digit rates. On the other hand, spending on AI and cloud infrastructure is rising sharply, squeezing margins. The results of some projects have fallen short of expectations—for instance, the revenues from the cloud services and AI platforms division were below projections, disappointing the market. Google’s stock is subject to spikes of volatility with any news about progress (or setbacks) in AI. Notably, an unsuccessful demonstration of a new chatbot from Google in early 2023 led to an immediate decline in the company’s market capitalization by billions of dollars—testifying to how high the stakes are.
Fundamentally, Google still possesses powerful assets: a colossal user base, advanced technologies and talent, as well as financial capital sufficient for investment in research. Yet, in assessing the future valuation of the company, analysts now take into account new risks. Can Google maintain its monopoly in search? Will it succeed in monetizing AI services as effectively as traditional search? Answers to these questions will determine the trajectory of the company's growth and the dynamics of its stock in the coming years.
Apple: Ecosystem vs. AI Challenge
Unlike Google, Apple does not rely on search advertising; however, global trends in AI also affect this giant. Apple’s business model is built around an ecosystem of devices and services, and retaining users within this ecosystem is key to ongoing sales and subscriptions. Nevertheless, the emergence of powerful external AI services indirectly threatens Apple's position regarding user experience. If consumers start to receive more advanced features from third-party AI platforms, this could undermine the uniqueness of Apple’s offerings.
Investor attention is particularly focused on the development of Apple's voice assistant Siri and other AI features. Despite substantial resources, Apple has noticeably lagged in the race for generative models. Former employees have pointed out that Siri has long been improved primarily through incremental updates rather than breakthrough changes—leading to technical limitations and delayed innovations. In 2023-2024, Apple introduced the "Apple Intelligence" initiative and several machine learning-based features (for instance, personalized suggestions on devices), but many expected updates have not been released on schedule. Meanwhile, competitors—from OpenAI to Google—have made AI functions ubiquitous, establishing a new benchmark for the industry.
Apple has traditionally emphasized user privacy and data security. From this perspective, the company avoids cloud solutions where on-device processing is feasible. This approach has earned the trust of users and regulators, but technically complicates the implementation of the most advanced AI models, which require large datasets and processing power. Faced with this dilemma, Apple is currently proceeding cautiously to avoid sacrificing its reputation for speed. However, the market is eager to see signs of leadership from Apple in this new domain. In 2025, Apple’s growth rate slowed down—investors are expressing concerns about whether the company can continue to surprise the world with breakthrough products in the age of AI.
Nevertheless, Apple retains significant advantages. Its vast installed base of devices means that as soon as Apple integrates more powerful AI solutions (be it an enhanced Siri or intelligent features in augmented reality glasses), they will immediately become available to hundreds of millions of users. Apple’s financial resources are nearly limitless—the company can invest in its developments or acquire promising startups, thereby increasing its innovation potential. For long-term investors, the question is whether Apple can convert its obvious strengths into a competitive advantage in the AI landscape. This will determine the preservation of high profits and Apple's market capitalization in the future.
Other Tech Giants: Adapting to the New Reality
Microsoft and the AI Bet
Microsoft has capitalized on the surge of interest in AI to strengthen its position. By investing billions of dollars in OpenAI and integrating the GPT-4 model into Bing search and Office products, Microsoft has demonstrated its readiness to keep pace with the trend. While Bing's market share remains small, the mere existence of a real alternative increases competitive pressure on Google. Moreover, Microsoft is turning AI into a new source of revenue: it offers built-in AI features (e.g., Copilot assistants in Office) to corporate clients for an additional fee and is stimulating the growth of Azure cloud services through demand for AI processing power.
These moves have already affected Microsoft’s perception among investors. Once viewed as a mature and moderately growing company, it is now again associated with cutting-edge technology. Microsoft’s market capitalization has reached historical highs amid expectations that AI solutions will provide a new impetus for its business. Fundamentally, Microsoft appears to be a diversified beneficiary of the AI trend: success in software, digital services, and the cloud provides it multiple growth channels, offsetting potential risks.
Meta: Advertising and AI Content
For Meta (formerly Facebook), the spread of AI presents both a challenge and an opportunity to reevaluate its approach to advertising. On one hand, social networks are competing for audience attention with new content formats based on algorithms (consider the rise of TikTok with its AI-powered “infinite feed”). On the other hand, Meta is actively integrating artificial intelligence to retain and monetize users. The recommendation algorithms on Instagram and Facebook now largely determine what posts a user sees, increasing engagement. Moreover, Meta is developing generative tools that enable advertisers to create more engaging ads using AI, while users can generate content (filters, avatars, etc.) within the platforms.
Meta’s strategy of optimizing costs and focusing on AI technologies has already paid off: after a difficult 2022, when changes to Apple’s data privacy policy hit advertising targeting, in 2023, Meta was able to restore revenue growth. The company reduced costs, focused on key applications, and invested in the development of its AI models (including the open release of the Llama model for researchers). All of this has returned some investor confidence—Meta's stock prices have significantly increased. However, the company’s future largely depends on whether it can continue to effectively blend its advertising core with AI innovations. Risks remain: competition for user attention is fierce, and Meta has to compete not only with traditional platforms but also with the new behavior of audiences who are increasingly inclined to spend time on generative services or virtual entertainment.
Amazon: Searching for New Solutions
For Amazon, AI development has also become a key strategic direction. Although Amazon's core business—e-commerce—differs from search, the company is already feeling the changes. First, Amazon is benefiting from the redistribution of advertising budgets: more and more brands are advertising directly on the Amazon platform, where buyers actively search for products (in effect, Amazon has become a “product search engine”). This part of Amazon's business is growing rapidly, increasing competition with Google for advertising capital. Secondly, Amazon Web Services is benefiting from the surge in demand for cloud capabilities to train and deploy AI models—many startups and corporations rent infrastructure from AWS for AI, contributing to revenue growth in Amazon's B2B segment.
Additionally, Amazon is integrating AI to enhance customer experience and its own efficiency. The voice assistant Alexa has been in the market longer than its competitors, and now, to avoid losing initiative, Amazon is incorporating more advanced language models into it. The Amazon store uses machine learning algorithms for personalized recommendations, logistics, and inventory management, reducing costs and improving service quality. All these measures strengthen Amazon's position: the company demonstrates its ability to adapt and find new profit avenues even as the landscape shifts. In the eyes of investors, Amazon remains one of the most resilient and flexible business strategies in the tech sector, capable of transforming technological trends into competitive advantages.
Stock Market: Fundamental Analysis of AI Impact
For the investment community, it is critically important to assess how the described changes are transforming the fundamental indicators of companies. Established models of revenue and cash flow forecasting are being reconsidered in light of the AI factor. Risks and opportunities are unevenly distributed: some corporations are leveraging AI as a foundation for a new growth cycle, while others must defend old sources of profit from erosion.
Growth forecasts now largely depend on how successfully a company integrates AI into its services and products. For example, Microsoft has received an upgrade in prospects due to AI integration across a wide range of offerings, while for Google, future growth rates are being questioned due to uncertainty in monetizing new search solutions. At the same time, expenditures are rising for all players—computational power and talented specialists demand significant capital. Companies with solid financial positions can withstand periods of heavy investment, while more vulnerable market participants may face margin compression.
Investors are already reallocating funds in an effort to increase the share of “winners” of the AI era in their portfolios. We are seeing increased attention to manufacturers of AI infrastructure and hardware such as Nvidia, as well as to cloud platforms—these are considered defensive assets in a time of change. Simultaneously, companies whose business models based on revenue flows are most undermined (e.g., purely advertising models) are viewed more cautiously by the market. Fundamental analysis of tech giants’ stocks increasingly includes an assessment of intangible assets—data, algorithms, and human competencies in AI—alongside traditional metrics of profit and revenue.
Importantly, current stock prices already partly reflect expectations regarding companies’ AI strategies. High multiples for tech giants are largely justified by investor faith in their ability to adapt and benefit from new technologies. If this ability is called into question, a reassessment of assets could occur—resulting in a decrease in market value even amid stable current metrics. Conversely, successful transformations and exceeding expectations from AI implementations can lead to upward re-ratings. Thus, fundamental valuation in the context of AI disruption requires more attention to qualitative factors: technological strategy, innovation potential, management flexibility, and even regulatory risks that may arise at this new technological frontier.
The internet industry is experiencing a moment of fundamental changes that present both new opportunities and threats for established players. For investors, this necessitates a clear-eyed assessment of developments and adjustments in portfolio formation approaches. Below are some key points summarizing the impact of AI technologies on the market:
- Leaders Benefit from Innovation. Companies that manage to lead the AI trend gain competitive advantages and new sources of growth. Technological innovation helps them strengthen their leadership and increase their market share, thereby supporting revenue and stock price growth in the long term.
- Risks Increase and Require Consideration. Traditional business models are under pressure, and investment risks in the sector are increasing. Investors must analyze how shifts in user habits and rising costs related to AI are affecting margins and fundamental indicators of each company while reallocating their capital considering these factors.
- Adaptive Strategy is Key to Success. Flexibility and responsiveness of management to new conditions are becoming critically important. Companies that promptly adjust their strategy and invest in essential directions can turn challenges into opportunities. For long-term investors, understanding the quality of developmental strategies and the company’s ability to monetize AI technologies is crucial for selecting promising assets for their portfolios.
Overall, artificial intelligence is becoming a defining factor in the digital age. Its impact on the market for internet services and advertising is already palpable, and this trend will only intensify. For all participants—both companies and investors—it's time to reassess established approaches. Those who can accurately evaluate the situation and make the right decisions will emerge victorious in a new reality where AI plays a central role in shaping internet habits and business models.
