Alphabet's AI Ambitions Are Pressuring Earnings, Analyst Says In Downgrade

Shares of Alphabet Inc GOOGL GOOG saw its second downgrade this week after Bernstein dropped its bullish stance, which came on the heels of a downgrade from UBS analyst Lloyd Walmsley.

The stock has gained around 40% from its November lows and it is “time to move to the sidelines,” according to Bernstein.

The Alphabet Analyst: Mark Shmulik downgraded Alphabet from Outperform to Market Perform while maintaining a $125 price target.

The Alphabet Takeaways: While the focus is on artificial intelligence, there is stiffening competition from retail media, a shift in market share to Meta Platforms Inc META, and “some Gen AI pressure capping near-term search growth,” Shmulik said in a downgrade note published Monday evening. 

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Google has gone from “too slow to too fast in AI,” the analyst said. “Google's aggressive push to integrate Gen AI into core search results could create a near-term air pocket on search ad pricing.” 

Investments into AI have pressured earnings, Shmulik said.

“Hiring ramping back up + greater capital spend behind Google's AI ambitions = EPS and FCF pressure.” 

GOOGL Price Action: Shares of Alphabet were trading down 0.99% at $117.62 Tuesday morning.  

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