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On Thursday, Bernstein analysts, led by Mark Shmulik, maintained their Market Perform rating on Alphabet Inc. (NASDAQ:GOOGL) with a steady price target of $185.00. According to InvestingPro data, Alphabet maintains excellent financial health with a "GREAT" overall score, though 17 analysts have recently revised their earnings expectations downward for the upcoming period. Shmulik’s analysis acknowledges the impact of generative AI on search behaviors, noting a significant shift as more investors experiment with new AI tools like ChatGPT, potentially diverting from traditional Google searches.
Shmulik observed that despite Alphabet not missing search revenue targets since the launch of ChatGPT approximately two and a half years ago, recent data indicates the slowest growth in paid clicks in Google’s history. Additionally, for the first time, there has been a decline in web search volumes on Apple (NASDAQ:AAPL) devices. These trends suggest that changes in search behavior are not isolated incidents but reflect a broader market shift.
The analysis by Bernstein highlights two key points: the overall market for search is expanding, but Google’s share of that market is diminishing. The critical question proposed by Shmulik is whether Google’s portion of the growing search market is larger now than it would have been before the advent of generative AI.
Shmulik also points out that generative AI is prompting users to ask new types of queries that were not typically directed at Google, such as creating images, drafting email responses, and summarizing topics. While these queries may be challenging to monetize, the analyst suggests that generative AI could lead to more commercial activity online by improving research capabilities and conversion rates.
In other recent news, Alphabet has been in the spotlight due to significant developments affecting its search business. Citi analysts have maintained a Buy rating on Alphabet, emphasizing the company’s innovations in generative AI, such as Gemini and AI Overviews, despite a slowdown in cost-per-click growth. Meanwhile, Apple’s exploration of AI search capabilities has raised concerns about Alphabet’s future revenue from search, as Apple’s Senior Vice President of Services, Eddy Cue, reported a decline in Safari searches for the first time in April. This potential shift in search dynamics has sparked investor worries about Alphabet’s ad revenue, given Apple’s consideration of alternative search providers like Perplexity and Anthropic.
Gene Munster of Deepwater Management highlighted the challenges Google faces, including the need to overhaul its monetization model and the increasing competition from AI-driven platforms like ChatGPT. Munster’s analysis suggests that Google’s current narrative has not evolved significantly, despite having the necessary resources to address these challenges. Additionally, Waymo, Alphabet’s autonomous driving subsidiary, plans to expand its fleet with 2,000 new robotaxis by 2026, supported by a new manufacturing plant in Metro Phoenix. This expansion is part of Waymo’s strategy to meet growing demand and enhance its autonomous ride-hailing services across several U.S. cities. These developments underscore the competitive and evolving landscape Alphabet is navigating in both the search and autonomous vehicle sectors.
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