Alphabet Inc. (GOOG, Financial), a dominant player in the tech industry, saw its stock price drop sharply by 11% in the third quarter of 2024 amidst growing concerns over its position in the generative AI sector. Despite a solid historical performance, with five-year net income growth exceeding 20%, the company faces new hurdles as evolving AI technologies begin to disrupt traditional internet search models.
The decline comes as Alphabet’s AI model, Gemini, has not met performance expectations, contributing to a broader skepticism about its competitive edge against rising AI innovations. This stock pullback proved investors’ skepticism about Alphabet’s sustainableness and future growth, especially in the search engine, “Google Search”. This engine holds a 90% market share command for the company. When discussing Alphabet’s business model at the 2024 Quality-Growth Conference, Stephen Yiu from Blue Whale Capital pointed out that generative AI can disrupt traditional revenue sources in the company. Similar to this sentiment, Alphabet’s shares have had high volatility on its stock market, rising to 65% in 2021, declining to 39% in 2022, and later rising again by 58% in 2023. In the near term, future earnings and development are expected to surge, with Alphabet riding on the AI wave, which is expected to gain momentum in the near future.
Nevertheless, the target price for Alphabet is $155.05, meaning there is an 18.98 % potential for growth for the next twelve months, with the Moderate Buy analyst’s consensus. Market investors and users will wait for Alphabet’s Q3 report in the hope of revitalizing the Alphabet stock in the fourth quarter. The key question, therefore, is whether the increasing generative AI technologies will reshape the external environment in Alphabet’s core businesses or create new opportunities to be capitalized on.
This article first appeared on GuruFocus.
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