Cathie Wood’s ARK Invest believes Google has more to lose than just its utter dominance of internet search requests, which generates close to 60% of parent company Alphabet’s overall revenue through the sale of online advertisements. 

In a research note published on Monday, ARK analyst Will Summerlin argues Microsoft CEO Satya Nadella could have another ulterior motive in mind: poaching Google customers—particularly in the dynamic market of cloud computing.

“We believe that Microsoft is aiming not only to lower Google’s search margins, but also to dissuade Alphabet from running Google Cloud and other businesses at a loss,” he wrote in the note. 

Currently there are three dominant global players that rent server hardware to third-party companies looking for readily scalable compute power.

The largest is Amazon, which effectively created the business model through its AWS unit. While most people might suspect the e-commerce giant’s earnings derive from online sales, they actually posted an annual loss. Only the $23 billion in profit from AWS saved the company’s year from disaster.

Next up, Microsoft Azure is the No.2, followed by the newest and smallest entrant into the business, Google Cloud Platform. 

Collectively they are known as hyperscalers. Whatever data processing needs your business may have from one day to the next, they can provide flexibly and dynamically by scaling up or down the compute power made available.

Year after year, the trio have delivered impressive growth in cloud-computing services. Here the recent quarterly revenue gains of 20% to 30% or more—broadly reflective of cautious corporate IT spending amid fears of a recession—are actually considered poor by historical standards.

Microsoft’s Nadella nonetheless remains bullish as companies can quickly slash costs by outsourcing their compute requirements and therefore cut back on expensive investment in their own hardware. 

“We are still in the early innings when it comes to the long-term cloud opportunity,” he told investors late last month. 

A.I.-enabled search far less profitable for Google

Summerlin argues the roughly 8.5 billion Internet searches per day that Google processes subsidize heavy investments in strategic future areas like the cloud, which reported a Q4 loss of $480 million. 

Nadella’s recent multiyear, multibillion-dollar investment in OpenAI, creator of the revolutionary ChatGPT, could force Google to release an A.I. feature within search that could drain it financially, Summerlin believes. 

That’s because inference costs for language models like OpenAI’s pioneering GPT-3.5 are “significantly higher” than those for search, Google’s bread-and-butter business, according to Summerlin. 

Furthermore, the monetization model for A.I.-based chat is still uncertain when compared with the ad-based model that Google has so adeptly mastered. 

In other words, any attempt to keep pace with Microsoft and OpenAI could paint Alphabet into a financial corner. 

If the consequence then is to protect margins by cutting back on investing in current loss-making activities such as Google Cloud, this could result in ceding market share to Microsoft and its Azure platform.

“By lowering Google’s search margins, Microsoft could put pressure on other Alphabet businesses, many of which compete with Microsoft,” argued Summerlin.

Neither Microsoft nor Google could immediately be reached for comment.