Bernstein Cautions Alphabet on Rapid AI Development
On Tuesday, Alphabet Inc. experienced another downgrade as Bernstein became the most recent firm on Wall Street to distance itself from the Google parent company.
Shares were down 1.5% after the cut as markets outperformed. The stock is on track for its sixth negative session in the past seven, though it’s still up more than 30% this year. Analyst Mark Shmulik wrote that the stock’s narrative “has quickly caught up with fundamentals,” resulting in a balanced risk profile.
The firm also noted risks associated with artificial intelligence, an emerging technology in which Alphabet is seen as a major player and which has fueled a 2023 rally in megacaps such as Microsoft Corp. and Nvidia Corp.
Alphabet has gone from “too slow to too fast in AI,” and “an aggressive push to integrate GenAI into core search results could create a short-term air pocket in search ad pricing,” Bernstein wrote.
The downgrade raises Alphabet’s consensus rating — a ratio of buy, hold and sell ratings — to 4.655 out of 5, the stock’s lowest since April 2018. A year ago, the consensus was 4.961 out of 5.
UBS downgraded Alphabet to neutral on Monday, writing that AI-related revenue “may take time to optimize” and that “it is difficult to see upside from our current high single-digit growth forecasts for Sites and the consensus calling for an acceleration to 11%.”
Alphabet isn’t the only megacap with moderate sentiments. Apple Inc’s consensus rating is at its lowest since November 2020, while Microsoft’s level was last seen in mid-2019.
Still, Wall Street remains largely bullish on Alphabet, with roughly 85% of analysts still recommending the stock as a buy. Even Bernstein is positive, writing that the stock is “like a warm hug” and “we hope to bounce back soon.”
