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Barclays analysts said in a research note Friday that Alphabet (NASDAQ:GOOGL) shares are likely to be rangebound until the digital ad market re-accelerates and competition and margin fears abate later in the second half of 2023.
The analysts, who have an Overweight rating and a $160 price target on the stock, explained that despite being years ahead in AI, “GOOGL shares face new risks from two vectors: 1) higher inference costs from AI-assisted search results, and 2) potential query share loss to ChatGPT, Apple (NASDAQ:AAPL), Bing & other.”
They stated that one of the firm’s biggest concerns is that if most of the zero-click searches today transition to AI-assisted results, GOOGL could see a material hit to operating income.
In addition, they pointed to the fact that if Apple were to upgrade Siri to incorporate some of the new AI technologies — which, in their opinion, is very likely — or the EU/DoJ scrutinize the Google-Apple TAC agreement to the point that it pushes Apple into paid search, they think as much as 20% of iOS query share is at risk.
Finally, the analysts said that while it seems a long shot, Microsoft’s (NASDAQ:MSFT) “aggressive push of the new Bing in desktop could claw away a few points of query share in that channel.”
“We think GOOGL is in a new era. One where the buyside can’t simply ‘set it and forget it’ with a 5% position. Investors are going to have to pay very close attention to not only the changing technology backdrop with AI but how the relationships between Google and its partners evolve as a result of these changes,” they argued.
Even so, Barclays remains bullish on the stock due to the potential ad market recovery and “several quarters of upside starting in 2H23.”
“When that phase comes back to the forefront, we think GOOGL shares can re-rate higher, and we want to be there for that.”
