Looking for a megacap technology stock which can defy a market downturn? You can do better than Google-parent
Alphabet,
according to analysts at
UBS.
Alphabet
(ticker: GOOG) risks disrupting its advertising business as it powers search results with artificial intelligence, according to UBS analysts led by Lloyd Walmsley.
The analysts downgraded their rating on Alphabet stock to Neutral from Buy, although they raised their target price to $132 from $123. Alphabet shares were down 1.4% at $120.58 in premarket trading.
Alphabet is integrating AI features into its search engine as it seeks to maintain its dominance against
Microsoft’s
(MSFT) Bing. While Walmsley and his colleagues expect the changes to help Alphabet see off the competition, they also warn they could displace paid advertising.
“In essence, our concern is that if the user query is answered by the AI… they no longer need to click through to the original website,” they wrote.
The UBS analysts noted Alphabet is currently trading at around a 9% premium to the S&P 500 when measured on its price-to-earnings ratio, compared with a historical 25% premium.
“We do not think the full historical premium is warranted considering the magnitude of uncertainty associated with GenAI and our outlook for slower growth of 8% over the next three years vs. 12% compounded growth over the last 3 years,” Walmsley wrote.
The UBS analysts say
Facebook
-owner
Meta Platforms
(META) and
Amazon.com (AMZN)
offer a better balance of risk and reward among the big U.S.-listed technology companies.
Write to Adam Clark at [email protected]
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