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Ever since the artificial intelligence (AI) euphoria began in 2023, which eventually helped catapult Nvidia (NVDA) into the ranks of $3 trillion market cap behemoths - a position it has since lost - Alphabet (GOOG) (GOOGL) has been trying to fight the perception that it is not slacking on its AI efforts and is pretty much in the race.
GOOG shares are down 8.9% for the year and have lost over 16% from their recent highs. The stock is up just about 34% over the last three years, which is the second-lowest among Magnificent 7 peers, trailing only Tesla (TSLA). NVDA, of course, is the best performer over that timeframe, followed by Meta Platforms (META). In this article, we’ll examine whether GOOG stock is a buy now as Google ups its game in AI. Let’s begin by analyzing what’s been driving Alphabet’s underperformance.
Why Is GOOG Stock Falling?
While tech and AI names have only recently looked weak, GOOG has been underperforming its large-cap peers for quite some time now. Concerns over Google losing market share to the likes of ChatGPT have weighed heavily on GOOG stock, even as the search giant has largely held its share so far. Moreover, DeepSeek built its AI model at a tiny fraction of U.S. tech giants, which led to a sell-off in names like NVDA and GOOG.
Markets have also been questioning Alphabet’s massive AI capex and wondering whether the company will be able to generate commensurate return on these investments.
Regulatory concerns have also been weighing down Alphabet stock, with the Justice Department planning to break up Alphabet and force the company to divest the Chrome browser and Android operating system. Reportedly, Google met with Trump administration officials to push back against its proposed breakup. According to Google, the proposals made by the Justice Department would be detrimental to the U.S. economy as well as “national security.”
Alphabet’s recent financial performance has also not been up to the mark, especially when it comes to cloud and YouTube. GOOG shares incidentally tumbled after the company released its Q4 2024 earnings, which showed that its revenue growth fell short of analysts’ estimates.
Alphabet Raises Its Game in AI
Google, meanwhile, has raised its game in AI. It has expanded its AI Overviews (AIO) and made them available to teens, eliminating the sign-in requirement. The company also introduced an “AI mode,” which it says “expands what AI Overviews can do with more advanced reasoning, thinking, and multimodal capabilities so you can get help with even your toughest questions.” The experimental features will only be available to those who have subscribed to Google One AI Premium, which costs $19.99 per month.
Google also unveiled new AI shopping features earlier this week, including “vision match,” which was previously run as an experiment in Labs. According to Google, the feature “lets you describe any garment you have in mind and then uses AI image generation to show you a few ideas of what it could look like and similar shoppable products.”
Google has also begun testing ads in AIO. However, it is worth noting that there could be pushback from publishers as they would lose out on revenues to these AI overviews. Struggling edtech company Chegg has filed a lawsuit against Alphabet, accusing the company of using Chegg (CHGG) content to retain traffic on AIO rather than letting it flow to its website.
All of that said, most people using Google search would attest to the fact that the AIOs are getting better with time, even as they are still not perfect. It would be fair to say that Google is not exactly slackening on AI innovation and continues to make the proposition better.
Is GOOG Stock a Buy Now?
Amid the slide in its share price, Alphabet’s valuations have also plummeted. It trades at around 19x its expected earnings over the next 12 months, the lowest among Magnificent 7 constituents, and at a discount to what the average S&P 500 Index ($SPX) constituent trades at.
I would argue that while Alphabet faces several headwinds, the current valuations seem a bit too depressed, making the risk-reward attractive. It wouldn’t be wise to write off Google in the AI race as it has been making incremental progress in making its proposition attractive.
The regulatory risk is an overhang for Alphabet, but before his election, Trump indicated that he was not in the favor of breaking up the company even as lashed out at Google for being “rigged” and has often criticized the company for being biased against conservatives – something the President has accused nearly all, if not all, Big Tech companies of doing.
Alphabet Stock Forecast
Sell-side analysts are also constructive on Alphabet, and the stock has a consensus rating of “Strong Buy” from the 51 analysts covering the stock. Its mean target price of $218.47 is almost 25% higher than March 5 closing prices, and it even trades below the most pessimistic target price of $184. Overall, I find GOOG’s risk-reward attractive at these price levels and would use any further weakness to add to my existing positions in the stock.
