Alphabet stock has performed poorly so far.
AI models such as Chatgpt and Confusion could threaten Google's search dominance.
Google's paid click-through rate rose only 2% year-on-year in the last quarter.
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Shares letter (NASDAQ: GOOG) (NASDAQ: GOOGL) So far, it has fallen 12% so far. Google owners underperform Nasdaq Composite MaterialsThis is a rally in recent weeks and so far has only dropped by about 1% at the time of writing.
At first glance, the stock seems to be effortless. This is one of the largest and most profitable companies in the world, with a very strong brand in Google. But some investors are questioning Google's competitive position, especially in search. More and more people seem to be using Openai’s Chatgpt and other leading artificial intelligence (AI) models to replace Google search.
We'll explore what this means for Google. But I believe investors may significantly underestimate the company's AI capabilities.
Top AI models such as Openai's Chatgpt and Xai's Grok may pull users out of Google searches, as these models can be used as search engines. Letter stocks fell sharply in early May after reports surfaced apple For the first time in April, Google searches fell through its Safari browser, and Apple blamed AI.
Confusion is an important step in competing with Google. It's with Shopping This allows users to purchase products they find when using confusion. Shopify can reach similar deals with Openai. This is the real risk for Google, because search is widely used when shopping online.
Its first-quarter earnings report showed fuel added to negative sentiment around the alphabet, showing that paid click years for ads displayed in search results increased by only 2%, compared to 5% a year ago. Given that search revenue accounts for 56% of the company's total revenue last year, that's not what investors want to see.
One problem with the market's reports on Apple's reports is that Safari search volume does not fully portray Google's competitive position. Google Search has more than 2 billion users conducting more than 5 trillion searches every year. After Apple news, Alphabet quickly provided investors with more details. "We continue to see overall query growth in searches," the company said, while also noting: "This includes an increase in total query from Apple devices and platforms." ”
Alphabet's competitive position may be much stronger than investors realize. Google's Gemini currently ranks the highest-ranking AI model on Chatbot Arena's rankings. It scores very well in fields like science and mathematics, and also scores well in using a lot of information at the same time. Gemini is powering AI capabilities in company products, including an AI overview, which has 1.5 billion users per month.
Although paid click-through rate increased by 2%, there was some softness in the advertising business, letters' first-quarter financial results were stable. Currency-neutral revenue increased by 14% year-on-year. CEO Sundar Pichai attributes the strong results to Google's "unique full-stack AI," a method that refers to the integrated solutions it offers for businesses that want to use AI, such as hardware, software and cloud services.
The core of Google's strengths lies in its data center and AI infrastructure, including its proprietary AI chips or tensor processing units. It is one of the leading high standards (data center operators), and the company's growth has made the company even more growing as more enterprises invest in cloud and artificial intelligence services. Google Cloud's revenue grew 28% last quarter, with an annual operating rate of $49 billion.
Despite increased search competition, the stock appears to be undervalued. Its transactions are only 19 times the revenue - S&P 500 Average is 28.
Despite recent pressure on profit margins from AI investments, analysts expect the company's earnings to grow by nearly 15% annually in the coming years, which could double Google investment in the next five years.
Investors should take Chatgpt, confusion and threats from other AI model manufacturers seriously. In the long run, significant losses from users may hurt Google. But not only are 2 billion users searching. Google has 2 billion users in seven services. Its ecosystem, including Gmail and YouTube, still gives the company a strong competitive advantage, which is nearly impossible for competitors to replace.
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Alphabet executive Suzanne Frey is a member of the board of directors of Motley Fool. John Ballard has no position in any of the stocks mentioned. Motley Fool has a place and recommends letters, Apple and Shopify. Motley Fool has a disclosure policy.
It's down 12% this year, should you buy letter stocks? Originally published by Motley Fool