Key insights
- Analyst downgrades Google (GOOG) to SELL due to declining search traffic, competition from OpenAI, underperformance of Gemini, potential lawsuits, rising energy costs, high AI CAPEX, increasing chip prices, dependence on ad density, and an elevated valuation. The analyst believes Google's reliance on consistent consumer habits makes it a dinosaur company undeserving of a premium valuation.
I had previously recommended STRONG SELL at >$330, UNDERWEIGHT at <$300, HOLD at <$280
-
Google traffic continues to decline, with a 20% reduction in desktop searches YoY.
-
OpenAI is projecting $100 Billion in ad revenue by 2030, which is likely to cut into Google's Search ads revenue
-
While Gemini has made progress, it continues to significantly underperform OpenAI and Anthropic models in real world use cases.
-
GOOG faces a potential avalanche of addiction lawsuits after a plantiff successfully sued for addiction.
-
Rising energy costs will increase GOOG's operating costs
-
GOOG is forced to spend hundreds of Billions on CAPEX on AI just to remain relevant(providing AI services like Gemini to users at no extra cost and without ads)
-
Rising HBM and chip prices are likely to reduce GOOG's return on invested capital.
-
Ad revenue growth has depended on increased ad density(more ads experienced by users), rather than organic growth in engagement, both across YouTube and
-
GOOG's valuation remains elevated at >29x earnings, compared to 23x for MSFT, 22x for Meta.
GOOG is a dinosaur company depending on the consistency of consumer habits to remain relevant. Thus is does not deserve a premium valuation over other tech companies likely to experience higher growth.