With Alphabet (NASDAQ:GOOGL) shares down 11% relative to the S&P 500 in 2024, analysts at MoffettNathanson assessed the current situation at the tech giant.
The firm, which has a Buy rating and $175 price target on GOOGL, believes there are several factors impacting the company, with the fear that Google's search business will be massively disrupted by Generative AI at the top of the list.
"Although the company has been at the forefront of machine learning since the dawn of search, there is a palpable negative thesis that is hard to disprove," said MoffettNathanson.
"Other concerns are more basic like the loss of advertising share to Meta and Amazon and worries that the company is less aggressive than peers in reaching efficiency," they added.
However, the analysts note that aside from the unusually strong 2021 and 2022 period, Google's ad business has steadily ceded share to Meta and Amazon for much of the past decade.
"In that light, Google's 2023 share loss is rather unremarkable," believes MoffettNathanson. "On the cost side, the company's lack of forward commentary and reluctance to copy the 'year of efficiency' moniker does not mean that the company isn't focused on cost reduction."
Nevertheless, when the firm takes a step back, it feels it is in the "unenjoyable position" of believing that the leadership of Alphabet and the deep bench of engineering talent will not squander their advantaged position.
The firm urged investors to "stay the course and have trust that leadership will innovate through this challenge."