The Stock Of Alphabet Is Downgraded By Analysts Citing The Threat Of Artificial Intelligence

Analysts generally hold a bullish outlook on Alphabet Inc.'s stock, but one analyst is deviating from the consensus. Rob Sanderson, an analyst at Loop Capital Markets, recently downgraded shares of Google's parent company, GOOG, -0.38% GOOGL, -0.37%, from buy to hold. Sanderson's rationale for the downgrade stems from concerns about the competitive pressures posed by artificial intelligence (AI) and its potential impact on Alphabet's future performance, despite the company's recent advancements in its AI chatbot, Bard.

‍

In his analysis, Sanderson emphasizes the apprehension surrounding Alphabet's ability to maintain its dominant market position during this significant technology transformation, which he believes could hinder the company's valuation. Rather than viewing competition from Microsoft's search capabilities as a major threat, Sanderson deems the risk of displacement from user behavior changes, as individuals increasingly rely on AI assistants to retrieve information, as a more significant concern.

‍

Sanderson envisions a future where social media companies assume a more prominent role in delivering information to users through AI assistants. He highlights their ability to engage with users and leverage vast amounts of behavioral and personal data exclusively available within their networks. Sanderson does not perceive this as an existential threat to Google but argues that this shift in user behavior will serve as a competitive force against Alphabet's dominant position in connecting users to information. Consequently, Sanderson anticipates potential volatility in Alphabet's valuation as investors closely monitor the company's AI transition.

‍

On a positive note, Sanderson acknowledges that advertising spending has demonstrated greater resilience than he initially expected. Nonetheless, he expresses a preference for shares of Amazon.com Inc. AMZN, -0.84% and Meta Platforms Inc. META, 0.86% within the large-cap tech sector. Sanderson even upgraded Meta's stock from hold to buy, underscoring its underappreciated revenue potential.

‍

Furthermore, Sanderson believes that Alphabet will outperform market expectations in terms of expense reduction, citing the company's substantial opportunity to cut costs, particularly when compared to peers such as Apple Inc. AAPL, -0.59% and Microsoft Corp. MSFT, -0.33%, especially in relation to per-employee costs.

‍

As of Monday's premarket trading, shares of Alphabet experienced a slight decline of approximately 1%. Nonetheless, they have rallied by 33% year-to-date, outperforming the broader S&P 500 index, which has gained roughly 7%.

‍