Over the next three to five years, Google’s primary upside valuation driver will be its proprietary large language models (LLMs).
That’s according to Needham analyst Laura Martin, who reiterated Alphabet Inc. (NASDAQ:GOOGL), Google’s parent company, with a Buy and a $178 price target on Wednesday.
She expects GenAI to aid Google’s internal operations and increase revenue growth. Martin adds that Google Cloud will generate revenue from both LLMs and the applications built upon them.
GenAI’s LLMs must be fed millions of data points every day. Google’s search engine and YouTube platform give the Gemini LLM competitive advantages and a deep moat, she says.
Ultimately, GenAI will disrupt content creation, user behavior, and business models.
What’s Next: On May 8, as part of the 20th annual Needham Internet & Media conference, Martin will host a virtual Zoom panel entitled “The Impact of GenAI on Media & Internet.”
One panel is expected to discuss various stocks, including Amazon.com Inc (NASDAQ:AMZN), GOOGL, Meta Platforms Inc (NASDAQ:META), The Trade Desk, Inc (NASDAQ:TTD), Netflix Inc (NASDAQ:NFLX), Walt Disney Co (NYSE:DIS), Reddit, Inc (NYSE:RDDT), Roku, Inc (NASDAQ:ROKU).
As for Google’s “Zero Click” strategy, it was GenAI’s most significant 2024 disruption, Martin says. She will focus on the key valuation dislocations, including:
- The possibility of GenAI eroding the foundations of digital advertising
- The positives of expanding margins from GenAI offset by falling barriers to entry for new competitors
- And whether the proliferation of GenAI-related content is good for any incumbent.
As the internet is flooded with new cheap, low-value content, Martin seeks to know whether this will affect consumer trust, reduce session time, and hurt monetization for higher-quality online content.
As GenAI summaries in search results eliminate the need to click through to links, this is lowering ad monetization for publishers that have historically relied on traffic referrals. Therefore, the analyst seeks potential fixes from the aforementioned companies.
After all, media is built on IP, and GenAI increases the risks of copyright violations, hallucinations, and deepfakes.
Price Action: GOOGL stock is down 1.03% at $154.77 at last check on Wednesday.
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