Now that summer is coming to an end, that means it’s time to pull out your scarf, grab a pumpkin spice latte, and reevaluate your tech stock. This series helps you decide what to do with your shares of the biggest names in tech – Apple, Alphabet, Amazon, Microsoft, Meta, Nvidia and Tesla. the magnificent Seven, Next up is Google, as the tech giant’s antitrust battle begins.
It’s an awkward moment for Google parent Alphabet (GOOG, GOOGL) to face an antitrust trial as its business is more vulnerable than it has been in a long time.
One of the biggest challenges to Big Tech’s dominance in decades, the court battle, which began on Tuesday, will determine whether Google illegally abused its power to protect its online search monopoly.
While the federal government alleges Google has little competition in search, some experts see the company struggling to keep up with increasing competition in other areas, particularly in AI and for consumers’ attention.
“Google is a change-making company, and this is not a change of their own choosing,” Gil Luria, senior software analyst at DA Davidson, said, referring to the hype about generative AI. “They have the advantage of developing the best possible device in their lab, but now they are struggling to see if they want to commercialize it and how they want to commercialize it.”
“This is going to be a critical time where they can either change their business model and become successful or fade into the background,” Luria said.
The Google sign is shown at the entrance to the company’s new building in New York on Wednesday, September 6, 2023. (AP Photo/Peter Morgan)
ChatGPT is a ‘wake-up call’ for Google
Luria reported that Google was “lukewarm” nine months ago. The tech giant’s core advertising business was doing well and its generative AI, confined to a lab setting, was moving forward.
“Then, they woke up one morning and they tried ChatGPT like all of us, and it was a wake-up call,” Luria said.
In short, Google’s entire business at the intersection of advertising and search probably needs to change. The question is how.
“Google is really in the midst of a big transformation and deciding if they want to change the way people search, and if they do, how they sell ads that way,” Luria said. Are.” “How do we sell ads if you’re chatting with a computer instead of searching? Can I put sponsored links at the top? Can I use my algorithms to control what you see? This is different, so how can I adopt it? That’s where Google is right now.”
How Google manages its advertising business in an AI-faced world is the future of it. In July, Google reported second-quarter revenue of $74.6 billion – of which $58.14 billion came from Google advertising revenue. YouTube advertising revenue also exceeded estimates, to $7.66 billion.
As this testing gets underway, Luria isn’t alone in thinking that Google has serious competition.
Although the FTC case revolves around whether Google abused its monopoly in online search, Yuri Khodjamirian, chief investment officer of Tema ETF, is not convinced that is the case. He manages the TEMA Monopolies and Oligopolies ETF (TOLL) which looks for genuinely sustainable long-term monopoly businesses.
And Google doesn’t fit the bill, Khodjamirian told Yahoo Finance. Ultimately, Google, like all tech companies, is in an uphill battle for your attention.
“Our view is that it is very difficult to call the technology a real sustainable long-term monopoly,” Khodjamirian said. “Technology is synonymous with disruption, and because of that we think it’s difficult to maintain a competitive advantage.”
“So many companies have changed their models to focus on advertising — a great example of that is Amazon,” Khodjamirian said. “All these companies, they’re all converging into the same market, so it’s hard to say it’s not competitive.”
What should you do with Alphabet stock?
Google’s stock is up about 54% year to date.
When it comes to antitrust trials, it will take the FTC and Google to quash it.
However, the bottom line on Wall Street is that, from a stock perspective, Google has room to run — and a lot of competition overall. Currently, Wall Street analysts’ recommendations break down to 10 buys, two holds and zero sells under the GOOG ticker and 54 buys, eight holds and zero sells under the GOOGL ticker.
If you’re trying to guess where Alphabet might go over time, keep an eye on its AI integration, Luria said.
“How well are they incorporating generative AI into basic search functionality?” He said. “How much ability do they have to monetize that new type of discovery? They’ll figure out everything else, they’re very smart people. But those two questions are monumental, because that’s, again, where they generate most of their are income.”
Even if Google succeeds in getting this right – and it might, given that it’s incredibly well managed – the company will continue to play defense given its dominance.
“Obviously Google has a big market share, but there’s always a threat of disruption,” Khodjamirian said.
eli garfinkel Is a senior tech reporter at Yahoo Finance. Follow him on Twitter @agarfinks and on Linkedin,
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