Why GOOG Stock’s AI Boost Won’t Last Long
After plunging during February, shares in Google parent Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) rallied during March. Trading for just under $91 per share at the start of the month, as of this writing, GOOG stock changes hands at around $103 per share.
The stock is near price levels last seen just prior to the tech giant’s poorly received unveiling of Bard. Bard is Google’s answer to generative artificial intelligence (or generative A.I.) sensation ChatGPT. However, don’t assume it’s poised to exit its slump.
The recent improvement in investors’ sentiment is based on something outside of fundamentals. This factor could soon fade. Once that happens, focus will shift back to Alphabet’s myriad of issues, both A.I. and non-A.I.-related.
Taking this into consideration, a further recovery will prove difficult. A return toward recent lows is more likely.
Why the Recent Lift Will Be Short-Lived
Despite GOOG’s moderate uptick in recent weeks, there’s been little in the way of major news with Alphabet. Sure, the company has had a headline-making development, with its announced advancement of Bard to the beta testing stage.
But by-and-large, shares have moved higher on basically zero news. The recent banking crisis has been driving price action with GOOG stock. The failure of institutions like SVB Financial (OTCMKTS:SIVBQ) subsidiary Silicon Valley Bank earlier this month led to a spike in fear, uncertainty, and doubt about financial stocks.
Capital flowing out of financial stocks cycled into major tech stocks, viewed as a relative safe-haven. Unfortunately, while turmoil in the banking sector turned into an expected booster for GOOG and other tech names, this factor has already faded. Although the crisis is still ongoing, financial contagion fears have settled down.
The market is easing back into banking stocks. Capital is once again flowing out of this FAANG component. Like I mentioned above, this means that Alphabet’s fundamentals will soon be top of mind again. That’s bad news, given that the concerns knocking it lower in the first place persist.
Behind the A.I. Eight Ball
GOOG stock may have been the beneficiary of a “flight to safety” in mid-March, but this uptick pales compared to the strong performance of stocks regarded by the market as top A.I. plays.
The market has been correct to ignore Alphabet’s A.I. bona fides, mainly because it has yet to prove them. Alphabet may make some progress with Bard, but the company remains far behind the winner of the “A.I. wars,” Microsoft (NASDAQ:MSFT).
As I have discussed recently, Microsoft is moving fast, integrating the technology received from its expanded partnership with OpenAI, the developer of ChatGPT. The company has integrated generative A.I. features into its Bing search engine and Edge web browser platforms, and is now at work integrating it into Office 365, as well as its Azure cloud computing platform.
Meanwhile, Alphabet continues to appear to have more to lose from this trend than to gain from it. With Microsoft’s progress, the company’s flagship Google Search business is at risk of losing market share. Profitability is also under threat, as a move to ChatGPT-style search queries will likely result in lower profit margins.
Alongside a lack of A.I. progress, a myriad of other problems have yet to clear up. Even sell-side analysts bullish on the stock in the long run, such as Barclay’s Ross Sandler, concede Alphabet isn’t out of the woods with problems like a weak digital ad market. Sandler also admits that GOOG’s days as a “set it and forget it” stock are now in the past.
Don’t forget, either, that the company is still in the crosshairs of the U.S. Department of Justice over antitrust allegations. Add in the uncertainty over whether recent layoffs will lead to big improvements and profitability, and it’s clear that a lot more needs to happen before the story with Alphabet officially changes.
Bottom line: don’t read too much into its recent rally. Continue to hold off on GOOG stock.
GOOG stock earns a D rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in 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.