Google Stock Downgraded On Views AI Changes To Search Will Slow Ad Growth
Analyst downgrade of GOOGL stock due to slowing advertising growth because of Google's transition to internet search using a generative AI.
Analysts who downgraded GOOGL's stock on Monday believe that Alphabet (GOOGL's) move to internet search based on a generative artificial intelligent will slow the growth of advertising revenues.
Lloyd Walmsley, UBS analyst, said that Google's relationship will also undergo major changes, which could have a negative impact on the stock.
Walmsley also downgraded GOOGL's stock from buy to neutral. In early trading today, shares fell by 1.2% near 122.
Walmsley wrote in a client note that "our concern is that SGE will take up valuable real estate, reducing the amount of space Google has available to serve an ad."
GOOGL Stock: A New Search Competition
Google is attempting to counter Microsoft (MSFT's) investment in OpenAI, an artificial intelligence startup. Alphabet presented generative AI at the Google I/O 2023 Developers event on May 10th.
Alphabet announced more AI tools at Google Marketing Live, May 23.
Walmsley said, "We acknowledge that Google's SGE launch is still at its very early stage. The integration of ads has yet to be figured out." "But, our initial testing shows that SGE has made material changes to the SERP (Search Engine Result Pages) in comparison with the old Google. They are a clear indication of Google's potential to disrupt its well-oiled Search monetization system.
Will Publishers restrict access to content?
The analyst also pointed out that the relationship between content publishers and GOOGL has changed. He pointed out that Google uses web crawlers, software used to find publicly accessible webpages. Crawlers also look at pages and click on links. They also send data to Google about the pages they crawled.
Walmsley said that the traditional "quid pro quo" for publishers who allow Google to crawl their site and include links within search results was free traffic. Google's SGE/Bard bot crawling publishers to answer questions, but with less clicks to source websites is not an incentive for publishers to allow Google access to their content.
According to IBD StockCheckup, Google's stock has a Relative Strength rating of 84, out of 99 possible. The best stocks have an RS score of 80 or higher.
GOOGL is overextended according to IBD MarketSmith charts. It is trading above a zone of buy.