Alphabet stock suffers $138 billion hit

(Bloomberg) - For more than a year, Alphabet Inc. shareholders have been bothering the company's currency printing search business with the long-term risks posed by artificial intelligence. The threat became more direct this week.

Most of them come from Bloomberg

Court testimony from Apple executives revealed Wednesday that iPhone Maker is exploring the addition of AI services to its web browser, and Google now pays an estimated $20 billion a year as the default search engine. Perhaps more worrying: Last month, Apple's safari searches were conducted.

The revelation suggests that questions raised by competitors such as Openai and numerous competitors may have been trapped in Google searches, which account for more than half of the parent company's revenue and the vast majority of the profits. In a subsequent blog post, Alphabet said that search queries continue to increase, including queries from Apple users.

Alphabet shares ended nearly 7%, while Nasdaq 100 shares fell just 0.2%. The decline cuts market value by $138 billion.

“The basic question is, will the letters lose the money tree?” said Art Hogan, chief market strategist at B. Riley Wealth Management. "This is the first time Alphabet has really seen the search competition since the category originated, and we've seen Chinks in armor."

Since its debut in late 2022, people have worried that letters will fall behind AI in AI. For example, in February 2023, the stock was concerned about the accuracy of its AI chatbot.

However, it showed the ability to rebound these losses, and the letters were rising until Wednesday. Stocks gathered in the days following their earnings reports, which showed that its search advertising business still ended on March 31 in the first quarter.

The scale and speed of the letter sell-off show how frustrating the risk of AI disruption is even for companies with strong talent in the field, making everything else overshadowing everything else and making it difficult for investors to value the tech giant.

Alphabet has long traded at discounted prices with Megacap like Microsoft Corp. However, due to concerns about YouTube owners falling behind in AI, the gap has widened over the past year.

Alphabet stock was priced at 15 times at the end of Wednesday, compared with an average of 21 times over the past decade, according to data compiled by Bloomberg. Microsoft is priced at 30 times the expected profit, with an average of 26 times.

B. Riley's Hogan said the problem is that competition with a larger search range could put future profits at risk.

"We don't know how much it could lose, or how fast it is," he said. "That means we can't be confident in the revenue part of the P/E ratio."

The letters represent further comments declined.

Alphabet's market share appears to be extending. According to the latest data from March, Alphabet has about 89.7% of the search engine market share. By comparison, after Chatgpt's release, the share in January 2023 was 92.9%.

Most analysts on Wall Street are still optimistic about the letters. Of the 76 analysts tracked by Bloomberg, more than 80% of the companies received a purchase rating. While this is lower than other large stocks (Microsoft, Amazon.com Inc. and Meta Platforms Inc., all bought by 90% or more analysts, Alphabet trades below 30% of the average analyst price target, with a higher earning potential than other analysts.

Mark Mahaney of Evercore ISI said that even if Google search volumes slowed, revenue expansion remained consistent. In a research note released Thursday, he advised customers to buy stocks after the decline.

However, some people are becoming more cautious. Melius analyst Ben Reitzes said the estimates for net income currently demanding $2025 net income may be too optimistic.

"Given the April trends indicated in CUE's comments, it could get worse," he wrote in a research note on Wednesday. "In our experience, these things happened very quickly."