Alphabet Inc – the parent company of Google, has long been an unstoppable force in the online search market. But the recent popularity of OpenAI’s ChatGPT has some investors worrying about its future. This year, Alphabet’s stocks have risen 20%, but have faced several steep drops when questions about Google’s accuracy arose. Additionally, reports that Samsung Electronics are considering replacing Google’s default search engine with Microsoft’s Bing engine caused shares to dip further.
For Alphabet, the stakes are high. Statista data reveals that Google enjoys over 85% of the worldwide search engine market, while Bing holds a mere 8.9%. Furthermore, most of Alphabet’s revenue – 57% – comes from online search, while Microsoft relies less heavily on this source, garnering only 5.8% of their 2022 revenue from search ads.
Investors fear that Alphabet’s search engine may be losing ground to other players. Michael Lippert, portfolio manager at the Baron Opportunity Fund, noted that even a minor shift could have a significant impact on Alphabet’s already substantial market share. Lippert has reduced his exposure to Alphabet’s stock in response to the risk.
Chief Executive Officer Sundar Pichai attempted to reinstate investor confidence in Alphabet’s artificial intelligence research by consolidating its AI research groups into one unit. However, it remains to be seen whether this move will be sufficient to eliminate the increasing competition.
But despite Alphabet’s situation, many analysts remain optimistic about the company’s prospects. Jim Awad from Clearstead Advisors believes that Alphabet is well equipped to face the tough competition, and sees Alphabet’s valuation as a strong point for the company – it trades at only 18 times estimated earnings, and is comparatively cheaper than three of the four largest tech and internet stocks.
Logan Capital’s Stephen Lee echoed the sentiment, noting that while AI technology isn’t currently driving significant revenue, Alphabet is in a strong position to handle the short term headwinds. He believes that with the current market position and low stock valuation, investors are properly hedged against the risks.
Alphabet Inc. is an American multinational conglomerate based out of Mountain View, California. It owns many businesses, including Google, research and development projects Labs, Verily, DeepMind and Calico. Sundar Pichai is the Chief Executive Officer of Alphabet and Google, leading the company through the ever-changing tech landscape. He has been viewed as an essential asset to the company, inspiring a growth mentality and promoting innovative solutions.
