Google-parent Alphabet could be moving too slowly in integrating chatbot artificial intelligence technology into internet search queries, cautioned a Mizuho Securities analyst. How putting conversational chatbot technology into search queries will impact advertising revenue has been an overhang on Google stock, he notes.
Since late 2022, Google has been under pressure to counter Microsoft's use of startup OpenAI's generative AI tools in its internet search engine. Google's advertising business depends on directing consumers to websites. Google also places paid ads at the top of internet search results.
How Will Ads Fit Into Search Results?
"The transformation of 10 blue links (paid ad links) to an answer engine is clearly powerful and disruptive, which leads to multiple players vying for the future of the highly profitable search industry," James Lee said in a report.
The Mizuho analyst added: "We see competitors taking risks by launching products faster, while Alphabet appears to be stuck in the innovator's dilemma, lacking decisiveness to go all-in on gen-AI search. "As a result, it creates a perception of the company losing technology leadership and a narrative of the incumbent losing market share over time."
On the stock market today, Google stock fell 0.9% to 149.44 in afternoon trading. Google stock had gained 9% in 2024 as of Friday's market close.
Meanwhile, Wedbush on Monday also addressed Google's progress in a report.
"On Friday, media reports confirmed that Google has begun testing its Search Generative Experience within the main Google search interface," said Wedbush analyst Scott Devitt in a report.
He added: "The feature was previously only available to users who opted into the experiment through Google Search Labs. Now, Google will test generative AI responses within normal Google search for a subset of U.S. users who have not opted into the experience, per a report from Search Engine Land."
Google Stock In 'Holding Pattern'?
Mizuho's Lee maintains a buy rating on Google stock. "We believe the stock is undervalued, trading at 10 times 2026 estimated earnings before interest, taxes, depreciation and amortization, below historical average. But we feel multiples could be in a holding pattern near-term until these issues are resolved," Lee added.
New generative AI models process "prompts" that describe what a user wants to get. Generative AI technologies create text, images, video and computer programming code on their own.
Further, Google stock has clawed back above its 50-day moving average. Google stock trades 3% below an entry point of 153.78.
Lee said Google also may be moving too slowly in cost-cutting initiatives. "The company appears indecisive on cost-cutting, leaving incremental shareholder value on the table," he said.
Follow Reinhardt Krause on X, formerly Twitter, @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
