Alphabet (NASDAQ:GOOGL) has been the undisputed leader in internet search for what feels like an eternity, but the rise of AI poses a real danger to its dominant position.
Maximize Your Portfolio with Data Driven Insights:
- Leverage the power of TipRanks' Smart Score, a data-driven tool to help you uncover top performing stocks and make informed investment decisions.
- Monitor your stock picks and compare them to top Wall Street Analysts' recommendations with Your Smart Portfolio
According to Loop Capital’s Rob Sanderson, an analyst ranked in the top 3% of Wall Street stock experts, the Search giant isn’t just facing competition; it’s staring down a disruptive new reality, and the outlook isn’t pretty.
“We remain concerned that consumer AI products across the entire technology industry are emerging as search substitutes and that Google’s historic monopoly in information seeking will be diluted,” Sanderson said. “We think this is a backdrop that will continue to pressure valuation and that any softness in search revenue growth will be an issue for the stock.”
His warning comes on the heels of Alphabet’s Q4 report, which has left the stock under pressure. Sanderson isn’t surprised, predicting that search growth could “slow meaningfully in 2025.”
AI assistants, says Sanderson, are indirect competitors to Google’s search dominance. OpenAI, with the “most mindshare,” and Meta, with the largest active user base, represent the biggest threats. However, other tech giants like Microsoft, Amazon, and Apple, along with startups such as xAI, Perplexity, Anthropic, and DeepSeek, are all playing a role in driving the “breakneck pace of AI innovation.”
Adding to Alphabet’s woes, the Financial Services sector – ranked by Emarketer as the third-largest digital marketing spender after Retail and CPG – was a key driver of search revenue growth last year, largely thanks to insurance companies. Sanderson warns this tailwind is unlikely to repeat in 2025. Meanwhile, growth from Chinese cross-border sellers may not keep pace, and reports suggest DTC (direct-to-consumer) brands are pulling back on Google ad spend.
“This is coming before shoes begin to drop on query migration to competing AI products,” Sanderson went on to add ominously, “which would be a meaningful negative if (when) this begins to occur.”
Meanwhile, Google’s relative share is “already declining quickly.” Meta has been capturing a larger portion of overall advertising revenue, consistently securing more incremental dollars year-over-year for the past eight quarters. While there’s no indication this shift is due to “query displacement to AI assistants,” Sanderson anticipates this trend will become more noticeable over the coming year.
So, where does this leave investors? Viewing the stock’s set-up as “unattractive,” Sanderson rates GOOGL shares as a Hold (i.e., Neutral), backed by a $185 price target. That suggests the stock will remain rangebound for the time being. (To watch Sanderson’s track record, click here)
The broader analyst consensus, however, is a bit more optimistic. With 27 Buys and 10 Holds, Wall Street still sees GOOGL as a Moderate Buy. The average price target stands at $215.85, suggesting a potential 17.5% upside from current levels. (See GOOGL stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
