MoffettNathanson analysts took a close look at Alphabet (NASDAQ:GOOGL), especially considering the tech giant’s shares have dipped 11% in relation to the S&P 500 this year. The firm maintains a Buy rating and a $175 price target on Alphabet, pinpointing several factors that could be influencing the company’s performance. A key concern among investors is the potential disruption of Google’s search business by Generative AI technologies. Despite Alphabet’s longstanding leadership in machine learning and search, there’s a widespread belief in a significant negative impact that’s challenging to refute.
Moreover, Alphabet faces other fundamental challenges, including losing advertising market share to Meta and Amazon and perceptions of being less committed to operational efficiency compared to its competitors. However, MoffettNathanson highlighted that Google’s ad business has been gradually losing market share to these companies over the past decade, with the exception of strong performance in 2021 and 2022. Therefore, the firm views the recent market share loss in 2023 as relatively unexceptional.
MoffettNathanson also addresses concerns about Alphabet’s approach to cost management. The absence of explicit forward guidance or the adoption of a “year of efficiency” strategy does not imply a lack of focus on cost reduction by Alphabet. The analysts suggest that the current situation and investor concerns may not fully reflect the company’s ongoing efforts and potential for growth.