Alphabet (NASDAQ:GOOGL) stock has been under pressure from various directions over the past 3 months. For one, the rise of GenAI has raised questions on whether it will continue to be the dominant player in the internet search landscape. Additionally, a federal judge recently favored the Department of Justice in its antitrust lawsuit against Alphabet, concluding that “Google is a monopolist.”
Looking at its current positioning, Pivotal analyst Jeffrey Wlodarczak considers several scenarios ahead for the tech giant.
“If the status quo holds,” says the analyst, “GOOGL appears to be in a very strong competitive position with a deep moat around their dominant core search business model (~90% market share ex China) and an obvious path to leverage 90%+ (ex China) global device presence (which we believe will dominate consumer AI assistant use), a strong AI platform and financial might to increase financial incentives to handset manufacturers for default AI placement.”
Moreover, Alphabet claims a solid number 3 spot in cloud computing, which, given only 15-20% of enterprise workloads are currently in the cloud, has “dramatic growth potential.” Not to mention, it also runs the biggest video and audio streaming platform globally (YouTube), and dominates the browser market with Chrome, which holds a 65% global market share (excluding China).
That said, considering the verdict in the antitrust lawsuit, and that the remedies being considered now could significantly impact its ability to leverage its dominant market position (while also creating opportunities for increased competition in search), Wlodarczak thinks the status quo is “unlikely to be an option medium/long term.”
Wlodarczak thinks the most obvious remedy to open up competition in search would be to prohibit Alphabet from making default search payments to handset manufacturers. This could be combined with the establishment of an oversight board or, in a more extreme measure, requiring the company to divest from the Android platform altogether. “We would view either of these remedies as negative for GOOGL’s core search business, as it opens the door mainly for MSFT’s Bing, but also for AI based alternatives,” Wlodarczak opined.
Nevertheless, even in such a scenario, Wlodarczak still thinks GOOGL represents a good investment opportunity given its “attractive valuation,” as the stock appears to have already priced in the most likely negative outcomes.
Accordingly, Wlodarczak initiated coverage of GOOGL shares with a Buy rating accompanied by a $215 price target. That figure suggests the stock will climb ~30% higher over the coming months. (To watch Wlodarczak’s track record, click here)
Overall, over the past 3 months, 39 analysts have offered their take on GOOGL and these breakdown into 30 Buys and 9 Holds, culminating in a Strong Buy consensus rating. The forecast calls for 12-month returns of ~22%, considering the price average target stands at $202.11. (See Alphabet stock forecast)
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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.
