Like many other tech stocks, Google-parent Alphabet has torn higher in 2023. As the halfway point of the year approaches, it may be time to “move to the sidelines” on the stock, according to analysts at Bernstein.
While it’s a tough call to bet against the tech giant, which historically has been a winner, shares in
Alphabet
(ticker: GOOGL) may be fairly valued right now, analysts led by Mark Shmulik at Bernstein wrote in a note. While there may be tailwinds ahead, some pressures are building on the stock that may make investors pause. The team at Bernstein downgraded Alphabet stock to Market Perform from Outperform and held the price target at $125. On Tuesday, Alphabet shares fell 0.2% to $118.13.
For one, the core business of internet search may be “hollowing out,” the analysts said. While Bernstein is optimistic on a recovery in digital advertising spending, there is increasing competition—and not just from artificial intelligence trends. Retail media competition and a share-shift back to
Meta Platforms
(META), the owner of Facebook and Instagram, both represent some cap to near-term search growth, said the analysts.
The team at Bernstein also highlighted that YouTube is getting a “shrinking slice in a slow-growing pie” with competition from TikTok, and that Google’s bid to compete seriously in AI means hiring will ramp back up and pressure earnings.
“Every so often Google’s stock appears fairly valued just as it does today, with a balanced risk/reward and narrative that has quickly caught up to fundamentals,” Shmulik wrote. “It’s time to move to the sidelines.”
Of course, there remain a number of bull cases for Google—which the team at Bernstein recognized. After all, the stock continues to garner an average rating of Buy among more than 40 analysts surveyed by FactSet, with not a single Sell rating.
“It’s hard to bet against search, and there may be enough slack in the cost base to limit margin pressure from AI spend,” said Shmulik. “There’s also a re-rating case tied to Google Cloud growth pushing Google squarely into the ‘clear AI winner’ camp.”
The Bernstein downgrade follows one made Monday by UBS, which cut Alphabet to Neutral from Buy, citing risks disrupting its advertising business as the company powers search results with artificial intelligence.
Write to Jack Denton at [email protected]
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