When it comes to AI, Nvidia may be the star of the show, but some Wall Street analysts have their eyes on another Big Tech name: Alphabet.
It’s certainly a less popular pick this. year. Investors have soured on Alphabet in recent months on concerns that AI could disrupt the company’s core search business. With platforms such as ChatGPT, users can directly access answers to their questions without clicking on links, reducing ad exposure for Google.
Alphabet stock is down 6% year-to-date, but that dip is exactly what makes it appealing, according to Mark Mahaney, Evercore ISI’s head of internet research. On CNBC on Thursday, Mahaney called Alphabet one of the best “dislocated high quality” names in the market.
Fears about AI have resulted in Alphabet shares trading at a discount, but Mahaney thinks the perceived threat to search is overblown, pointing out Alphabet’s robust business lines with YouTube, Google Cloud, and Waymo. In a worst-case scenario where search does indeed slow down, growth in these other segments could drive upside to the stock.
Eric Sheridan, co-business unit leader of the TMT group at Goldman Sachs, agrees. He believes Alphabet presents one of the most compelling risk-reward profiles among the large-cap tech companies.
“There is a debate around search, but increasingly with the value of YouTube, Cloud, and Waymo going higher inside the broader Alphabet, we think you’re paying less and less for search at the same time that a wall of worry is rising,” Sheridan told Business Insider.
Investors might also be overlooking the strategic advantage Alphabet has with its Gemini AI platform, according to Sheridan: “Putting Gemini into mail, search, Chrome, Maps, YouTube — all of these avenues of distribution could be an advantage for Alphabet in an AI first-world that are being undervalued,” he said.
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Additionally, Alphabet might have a line of defense against AI queries: commercial search, or searches where users are looking to buy products. These searches are considered the most high-value in terms of revenue and advertiser interest, according to Bank of America. Even with AI overviews, users looking to make a purchase are still likely to use commercial search to compare options and click links.
“Today, we have not highlighted any risk to that commercial query share, and definitely not to commercial query monetization,” Sheridan said.
Evercore’s quarterly surveys haven’t revealed any change in Alphabet’s share of commercial search queries. In fact, Mahaney has actually seen a slight uptick in volume.
“If Google can accelerate its paid click growth a bit, if they can sustain this double-digit paid search revenue growth, I think over time that will kind of wear down the existential search risk,” Mahaney said.
