It’s Alphabet (GOOGL) versus Microsoft (MSFT) in artificial intelligence — and after decades of owning search, Google finds itself looking over its shoulder. While the Club owns two shares, we are most concerned about Alphabet at the moment as it plays in the AI arms race and faces government antitrust lawsuits over its dominance of online advertising. Last week was brutal for Alphabet stock. Microsoft last Tuesday announced surprise plans for an AI-enhanced version of its Bing search engine, which has almost no market share. In response, a day later, Google held its own AI event – showing off Bard, its answer to ChatGPT. It failed. Last Wednesday’s and Thursday’s back-to-back declines in Alphabet shares were the biggest losses in two sessions since March 2020. Wall Street’s rebuke to GOOGL last week reflected concerns that the new Bing – pow e red by Microsoft-backed OpenAI , maker of the viral sensation ChatGPT – to gain a foothold in search, Alphabet’s dominance of online advertising could be threatened. The Justice Department suit could also shake up the advertising market. Alphabet’s business model depends on revenue from online advertising. The company generated full-year 2022 total revenue of $282.84 billion — 79% of which came from Google’s ad line items, according to the company’s most recent 10-K filing with the Securities and Exchange Commission. “I question Alphabet’s business model now,” Jim Cramer said last week. “They need to do it quickly.” GOOGL MSFT 3M mountain Alphabet (GOOGL) vs. Microsoft ( MSFT ) 3-month performance Alphabet shares fell more than 9.5% over the past week, shedding $135 billion in market value, according to FactSet, ending last week with a market cap of $1.21 trillion. By comparison, Microsoft’s stock fared better on the week. To be fair, tech stocks overall struggled on Friday after a tumultuous start to 2023. But on Monday, tech stocks were higher, with Microsoft up more than 3.5%. The alphabet is on either side unchanged. In a research note on Friday, Jefferies called the sharp decline in Alphabet shares “overdone.” When Bard was cited in the report for the incorrect description in the promotional video, Jefferies analysts wrote, “There are many examples of ChatGPT producing inaccurate or misleading answers.” Jefferies’ notes rely on insights from discussions with artificial intelligence experts, who previously worked as product leaders at Google AI. “The quality of a great AI model depends heavily on the quality of the data,” and Google search has a big lead because it uses Search, Chrome and Android, Jefferies analysts argue. Jefferies reiterated its buy rating on GOOGL, with a $130 price target on the stock, which closed at $95 per share. The overhang on Alphabet from the DOJ antitrust lawsuit is troubling and confusing. “It’s hard when you have the Department of Justice saying you have a monopoly and when you have that monopoly being destroyed at the same time by Microsoft,” Jim said. Announced late last month, the DOJ’s suit accused Google of “anticompetitive practices” regarding the digital advertising market. Eight countries have also filed an antitrust lawsuit against Alphabet, asking the company to divest its ad tech business. Evercore ISI said in a new research note that the ongoing regulatory battle with the government “brings only modest fundamental risks such as “higher overhead costs, management disruption and the possibility of a tentative ad market.” price target of $120 per share. Google responded to the suit The DOJ in a blog post, claims it is “one of hundreds of companies that enable the placement of advertisements on the internet. And it is well reported that the competition is increasing as more and more companies come in and invest to build their investment business. and there’s a better chance that Bing’s capabilities could lure at least some users away from Google search. Jim also called the DOJ’s antitrust ad suit “brutal.” He added that it had been an “embarrassing three weeks” for Alphabet, which included a sharp decline a day after it reported weaker-than-anticipated fourth-quarter results on February 2. The AI-powered chatbots market is still in its infancy, so we wouldn’t be surprised to see other players jump into the AI race. “Meta has something lined up big,” Jim said, referring to the Club holding Meta Platforms (META), although he did not give further details. If the rise of chatbots becomes more common, A lphabet may find it more challenging to integrate advertising on the platform. We are not acting on this development but are very aware of the risks. (Jim Cramer’s Charitable Trust is long GOOGL, MSFT, META. Read here for a full list of stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you will receive trade alerts before Jim makes a trade. Jim waits 45 minutes after sending a trading signal before buying or selling shares in his charitable trust portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing a trade alert before executing a trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO THE TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH THE DISCLAIMER. No fiduciary obligation or duty is, or is created, based on the receipt of the information provided in connection with the investment club. No special results or profits are guaranteed.
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That Alphabet (GOOGL) opponent Microsoft (MSFT) in artificial intelligence – and after decades of owning search, Google finds itself on the shoulder. While the Club owns two shares, we are most concerned about Alphabet at the moment as it plays in the AI arms race and faces government antitrust lawsuits over its dominance of online advertising.