‘Don’t Bet Against Alphabet Stock,’ Says Youssef Squali

Alphabet (NASDAQ:GOOGL) has had almost exclusive dibs on internet search for what seems like forever. However, the rise of GenAI is posing serious questions about its ability to keep on dominating the space to such an extent.

This is a situation acknowledged by Truist’s 5-star analyst, Youssef Squali, who thinks the search giant could be heading into a challenging period.

“We remain constructive on GOOGL but believe that visibility into potential cannibalization of its search traffic and monetization of gen-AI searches (expected to begin by year-end) will dictate the direction of the stock N/M term,” Squali said. “From search engine to answer engine, Gen-AI is gradually transforming a static search experience into a richer chat-like interface and gaining mindshare among Google users but also ChatGPT and Perplexity.ai’s.”

In the last 20 years, internet search has evolved at a slow pace, but that’s now changing with the advent of gen-AI search, which is shifting towards a more dynamic, interactive, chat-like interface. Currently, most search traffic on gen-AI platforms involves non-commercial queries, suggesting to Squali that, in the near term, commercial searches will likely remain on established platforms such as Amazon, Google, and Bing, thereby minimizing the immediate financial impact on these companies.

Nevertheless, the analyst thinks this trend will inevitably result in a fragmentation of the broader search market. As users gradually become more accustomed to these alternative gen-AI-powered platforms, and as these platforms scale and incorporate sponsored ads, they are likely to gain traction. One example of such a platform is Perplexity.ai, which launched in 2022 and has already reached around 230 million users worldwide, according to the company.

So, is Google ultimately doomed? Not at all, says Squali. In fact, thanks to the “huge moat” it has built around commercial queries with its proprietary data accumulated over the past 25 years, Squali believes “this is Google’s game to lose.”

“While Google was caught flat-footed in its pursuit of gen-AI when ChatGPT was launched in November 2022, and was forced to accelerate the roll-out of its technology and to double down on its investments, it is still the company to beat given its dominance, singular brand, global scale and financial capability,” he summed up.

All told, Squali rates Alphabet shares a Buy, along with a $196 price target. This figure conveys his confidence in GOOGL’s ability to soar ~27% in the next twelve months. (To watch Squali’s track record, click here)

The Street’s average target is a bit higher than Squali will allow and at $203.97 factors in 12-month returns of ~32%. Overall, the stock claims a Strong Buy consensus rating, based on a mix of 28 Buys vs. 9 Holds. (See GOOGL stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.