By Aditya Soni and Jody Godoy

(Reuters) -Apple's ( AAPL ) plans to add AI-powered search options to its Safari browser are a big blow to Google, whose lucrative advertising business relies significantly on iPhone customers using its search engine.

The news slammed shares of Google-parent Alphabet, which closed down 7.3%, wiping off roughly $150 billion from its market value.   

The iPhone maker was "actively looking at" reshaping Safari, a source familiar with the matter told Reuters, citing Apple ( AAPL ) executive Eddy Cue who was offering testimony at an antitrust case on Wednesday over Google's dominance in online search.

Cue said searches on Safari fell for the first time last month due to users increasingly turning to AI, according to the source. Apple ( AAPL ) stock closed down 1.1%.

Google said that it continued to see growth in the overall number of search queries, including "total queries coming from Apple's ( AAPL ) devices and platforms," according to a statement posted on the company's blog.

"People are seeing that Google Search is more useful for more of their queries - and they're accessing it for new things and in new ways," the company wrote.

Google cited voice and visual search features as contributors to total search volume growth. It was unclear whether Cue was using the same basis of comparison in his testimony when analysing types of searches.

Still, the Apple ( AAPL ) executive's comments suggests that a seismic shift in search is likely underway, threatening Google's dominant search business - a go-to advertising destination for marketers that has now become a target for U.S. antitrust regulators, which filed two major lawsuits against the company. 

Google is the default search engine on Apple's ( AAPL ) browser, a coveted position for which it pays the iPhone maker roughly $20 billion a year, or about 36% of its search advertising revenue generated through the Safari browser, analysts have estimated.

Banning Google from paying companies to be the default search engine is among the remedies that the U.S. Justice Department has proposed to break up its dominance in online search.

"The loss of exclusivity at Apple ( AAPL ) should have very severe consequences for Google even if there are no further measures," D.A. Davidson analyst Gil Luria said. 

"Many advertisers have all of their search advertising with Google because it is practically a monopoly with almost 90% share. If there were other viable alternatives for search, many advertisers could move much of their ad budgets away from Google," Luria said.

Google is not defenseless.

Written off as an also-ran in the AI race by critics after ChatGPT's buzzy launch in late 2022, Google has reached into its deep pockets to fund its AI efforts and leverage its vast data trove.

The company introduced an "AI mode" on its search page earlier this year, looking to retain its millions of users from going away to other AI models.

It recently expanded AI Overviews - summaries that appear atop the traditional hyperlinks to relevant webpages on a search query - for users in more than 100 countries, and added advertisements to feature, boosting Search ad sales.

CEO Sundar Pichai said in a testimony at an antitrust trial last month that Google hopes to enter an agreement with Apple ( AAPL ) by the middle of this year to include its Gemini AI technology on new phones.

Apple's ( AAPL ) Cue on Wednesday also said the company would add AI search providers, including OpenAI and Perplexity AI, as search options in the future, Bloomberg reported.

"(Apple's ( AAPL ) plan) also shows how far generative search sites, such as ChatGPT and Perplexity have come," said Yory Wurmser, principal analyst for advertising, media & technology at eMarketer.

That Google is willing to pay tens of billions of dollars to remain the default search engine shows how crucial the agreements are, Wurmser said.

For instance, ChatGPT in April reported seeing over 1 billion weekly web searches for its search feature. It has more than 400 million weekly active users, as of February.  

(Reporting by Jody Godoy in Washington, Kenrick Cai in San Francisco, Arsheeya Bajwa and Aditya Soni in Bengaluru; Additional reporting by Deborah Sophia; Editing by Sayantani Ghosh, Arun Koyyur, Anil D'Silva and Jacqueline Wong)