Alphabet downgraded by Loop Capital on 'structural uncertainties' surrounding AI
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Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) shares were downgraded by investment firm Loop Capital on Monday after last week's move higher following its I/O developer conference and the "structural uncertainties" surrounding artificial intelligence.
"We think Googleâs I/O event opened some eyes to the companyâs strong position in AI, reflected in last weekâs 11% gain in the stock (S&P500 down 0.3%)," analyst Rob Sanderson wrote in a note to clients, adding that concern over whether it can "maintain its dominant position through this massive technology transformation will hold back valuation."
Sanderson lowered his rating on Alphabet (GOOG) (GOOGL) shares to hold from buy, but kept the per-share price target of $125.
Alphabet (GOOG) (GOOGL) shares fell around 1% in pre-market trading on Monday.
Sanderson said Microsoft (MSFT), which has been seen by some as a viable competitor in the search space, is actually a lesser threat than risk of displacement from behavioral changes. However, it's possible that Google (GOOG) (GOOGL) cuts costs faster than believed and could buy back as much as $120B in stock through 2024.
Nonetheless, the aforementioned "structural uncertainties" are likely to keep investors "nervous" as the space continues to evolve, placing a lid on the stock's valuation.
"We are comfortable with Googleâs ability to again win on product and maintain a reasonably similar share of search activity," Sanderson added in the note.
"We disagree however with managementâs characterization that AI proliferation is similar with the transition to mobile. This is much more than a platform transition."
On the plus side, Sanderson noted that advertising spending has held up better-than-expected, while YouTube looks to be "inflecting positive" and the continued proliferation of AI is likely to drive demand for Google's (GOOG) (GOOGL) cloud infrastructure.
Analysts are exceedingly bullish on Google (GOOG). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a STRONG BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates GOOG a STRONG BUY.
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