Google-parent Alphabet's transition to internet search using a generative artificial intelligence will slow advertising revenue growth, says an analyst who downgraded GOOGL stock on Monday.
Also, Google's relationship with content publishers will undergo big changes that could impact Google stock, says UBS analyst Lloyd Walmsley.
Further, Walmsley downgraded GOOGL stock to neutral from buy. Shares fell 3.3% to close at 118.34 on the stock market today.
"Our concern is that SGE (generative AI-based search) will take up valuable ad real estate reducing the space Google has to serve up an ad," Walmsley said in a note to clients.
GOOGL Stock: New Search Competition
Google aims to counter Microsoft's investment in artificial intelligence startup OpenAI. At the Google I/O 2023 developers event on May 10, Alphabet showcased the integration of generative AI into search, maps, Workspace, photos, cloud computing and Android devices.
At Google Marketing Live on May 23, Alphabet unveiled more AI tools for advertisers.
"We recognize that Google's SGE rollout is still in its very early stages, with the integration of ads still being figured out," Walmsley added. "But our initial testing of SGE shows material changes to SERP (Search Engine Results Pages) vs. the old Google. We see (them) as demonstrative of the potential disruption to Google's well-oiled Search monetization machine."
Will Publishers Restrict Access To Content?
In addition, the GOOGL stock analyst pointed to changing relationships with content publishers. He noted that Google uses software known as web crawlers to discover publicly available webpages. Also, crawlers look at webpages and follow links on those pages. Further, they bring back data about those webpages to Google's servers.
"The traditional quid pro quo for a publisher allowing Google to crawl its site and include links in search results is free traffic to the publisher's site," said Walmsley. "But if Google's SGE/Bard chatbot are crawling publishers just to provide answers, with fewer click-outs to the source websites, then publishers are clearly not incentivized to give Google access to content."
Meanwhile, the Relative Strength Rating of Google stock stands at 84 out of a best-possible 99, according to IBD Stock Checkup. Further, the best stocks tend to have an RS rating of 80 or better.
According to IBD MarketSmith charts, GOOGL stock is extended. It trades above a buy zone.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
