Google, a tech giant, once again felt the pinch of a Wall Street rating downgrade this past Tuesday. Bernstein, a financial research and management firm, issued a warning that Google's rapid advancements in Artificial Intelligence (AI) could pose a threat to its advertising business.
Bernstein had changed Google's A rating from "Outperform" to "Market-Perform" with a new target price set at $125.00. This comes on the heels of UBS's move the previous day to downgrade Google to neutral from buy, suggesting a more cautious approach towards the U.S. tech giant.
Bernstein's analyst, Mark Shmulik, observed that Google's share price had quickly caught up to its fundamentals. Google's AI development was considered a certain risk as AI is still a burgeoning technology. Google, alongside Microsoft and Nvidia, was considered a significant player contributing to this year's surge in U.S. tech stocks.
However, Google's pace in AI had moved from trailing to leading the pack. Shmulik suggested that their aggressive efforts to integrate Google AI (GAI) into their core search could potentially undermine the pricing of search advertisements.
UBS had cautioned that revenue related to AI might need time to optimize. At present, single-digit growth expectations for related websites are difficult to see upward potential, with the market generally predicting a growth acceleration to 11%.
The downgrade of Google's rating dropped its consensus rating, which represents the ratio of its buy, hold, and sell ratings, to 4.655 out of 5 - the lowest since April 2018 and a considerable decrease from 4.961 a year prior. Despite this, Google's stock has seen more than a 30% increase so far this year.
Risk preferences for other tech stocks are also cooling off. Apple's consensus rating is at its lowest level since November 2020, while Microsoft's rating is at its lowest since mid-2019.
However, Wall Street still remains bullish on Google with about 85% of analysts continuing to recommend buying the stock. Bernstein also maintains a positive stance, likening the stock to "a warm hug we hope to return to soon" in its report.
