AI Underperformance Means You Should Stay Away From GOOG Stock

It seems as if all of the latest news regarding Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) has been of the negative variety. This has played a big role in the continued underperformance of GOOG stock.

Since last year, issues for the tech giant have included a weak digital advertising market, rising competition, and regulatory scrutiny. Over the past month, competitive risks have spiked. The rise of A.I.-assisted search engine technology could severely affect the future dominance (and profitability) of the company’s search advertising business.

If that’s not bad enough, regulatory headwinds have increased once again. That is, the U.S. Department of Justice (or DOJ) has launched yet another probe against Alphabet, for alleged anti-competitive practices. This may not necessarily be a “make or break” development for GOOG.

But as new challenges continue to emerge, as old challenges persist, shares will likely stay under pressure.

GOOG Stock and the Latest DOJ Probe

As reported by Bloomberg on Feb. 22, the DOJ is investigating the market dominance of Alphabet’s Google Maps platform. Specifically, the agency is investigating whether the company, by bundling other services with Maps, violated federal antitrust law.

This probe has just started, but if it turns into a full-on antitrust complaint, it will be the third one filed against the big tech firm over the past few years. The DOJ has sued Alphabet in two separate cases, one for alleged monopolistic practices in search advertising (filed in 2020), and just last month, another suit alleging that it has monopolized multiple digital technology products.

Again, I do not believe the latest regulatory scrutiny, or even the previously-filed antitrust suits, will result in a “game over” moment for GOOG stock. However, the time, money, and effort needed to fend off this scrutiny reduces the availability of these resources to contend with the company’s other issues.

Namely, the aforementioned rising competitive pressures. Ironically enough, Alphabet is currently in a situation where it needs to prove that it is not engaging in anti-competitive practices, all while competition is clearly affecting and/or threatens to affect the performance of its operating units.

A Recipe for Continued Underperformance

Regulatory scrutiny may be a secondary risk for GOOG stock, but alongside key concerns, the current situation with this FAANG component may be the perfect recipe for continued underperformance.

The tech industry slowdown has affected profitability and growth in recent quarters. This could continue well into 2023, and perhaps even into 2024. Worsening the situation of dampening demand for Alphabet’s digital advertising services, as well as its other offerings, the company’s Google Cloud and YouTube units are being challenged by—you guessed it, competitive pressures.

Alongside this, a new competitive threat has emerged. Microsoft (NASDAQ:MSFT), following its expanded partnership with ChatGPT developer OpenAI, has integrated OpenAI’s technology into its Bing search engine. This could finally turn Bing, a distant second to Google in terms of market share (9% versus 84.1%) into a serious competitor.

As I discussed earlier this month, Alphabet’s “response” to Microsoft, the unveiling of its Bard chatbot, was poorly-received by the market.

In addition, if A.I.-assisted search supplants traditional keyword search, it may have a negative impact on Google Search’s high margins. There’s little suggesting resolution to all these issues will arrive quickly. With this, expect them to continue hindering GOOG’s performance.

Bottom Line

It may seem like Alphabet’s many troubles are priced in. However, don’t assume that this stock has found a floor at current prices (low-$90s per share). If battles on multiple fronts weren’t bad enough, macro uncertainties continue to weigh on the overall stock market.

This too will likely place additional pressure on shares. In fact, if there is an additional broad market selloff, GOOG may be at risk of hitting new multi-year lows.

Although perhaps GOOG is worth a second look if it falls to such low prices, there’s still little-to-no reason to “buy the dip” today.

The latest bad news with Alphabet doesn’t make me more bearish on the stock, but it certainly does not positively change my view.

Holding off on entering or adding to positions in GOOG stock continues to be your best course of action.

GOOG stock earns a D rating in Portfolio Grader.

On the date of publication, Louis Navellier held GOOG and MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.