Alphabet’s so-called competitive moat ‘is about to be disrupted,’ says Melius Research analyst Ben Reitzes.
DREAMSTIME
Alphabet , the parent company of Google, is facing increased competition in the artificial intelligence space and is “cheap for a reason,” according to Melius Research.
In a research note on Monday, analyst Ben Reitzes wrote that while Alphabet has a “moat,” or competitive advantage, in search, that is “about to be disrupted.”
“Google’s market share for search hasn’t budged, despite Microsoft ’s improvements to Bing,” Reitzes said. However, competitors such as ChatGPT and Perplexity show “what AI search may look such as,” and how it could challenge the competitive advantages of Google.com.
“Google’s Search Generative Experience (SGE) is in use with partners, and it has a renamed Bard, as Gemini, with a $20/mo. version,” Reitzes wrote. “We’d such as to see more evidence that SGE is the preferred method of search in an AI world vs. outcomes produced by AI assistants.”
Google didn’t immediately respond to a request for comment.
ADVERTISEMENT - SCROLL TO CONTINUE
Reitzes rates Alphabet as a Hold with a target of $164 for the price, saying the stock is fairly valued.
Citi analyst Ronald Josey wrote in a research note at the end of January that Alphabet’s valuation in terms of forward earnings is at “a discount to ‘Mag 7’ peers, a bargain in our opinion given multiple consumer and
enterprise growth opportunities for the business.” That is a reference to the Magnificent Seven tech stocks that led the market rally in 2023: Alphabet, Microsoft, Amazon.com , Nvidia , Meta Platforms , Apple , and Tesla .
Alphabet currently trades at 20.7 times the per-share earnings expected for the coming year, compared with its five-year average of 23.4 times. Microsoft is trading at 32.2 times forward earnings, Amazon is at 40.3 times, and Meta Platform s is at 23.7 times.
ADVERTISEMENT - SCROLL TO CONTINUE
Alphabet shares were down 1.6% Monday at $141.49. The stock has gained 57% over the last 12 months