Alphabet Moving ‘Too Fast’ in AI, Bernstein Warns in Downgrade

Alphabet Inc. received another downgrade on Tuesday, with Bernstein becoming the latest firm on Wall Street to step away from the Google parent company.

Alphabet Inc, Google's parent company, is not the only megacap seeing a moderation in sentiment. Consensus ratings for Apple and Microsoft have dropped too. (Bloomberg)

Alphabet Inc. received another downgrade on Tuesday, with Bernstein becoming the latest firm on Wall Street to step away from the Google parent company.

Shares fell 1.5% after the cut to market perform from outperform. The stock is on track for its sixth negative session of the past seven, though it remains up more than 30% this year. Analyst Mark Shmulik wrote that the stock's narrative “has quickly caught up to fundamentals,” resulting in a balanced risk profile.

The firm also noted risks related to artificial intelligence, an emerging technology that Alphabet is seen as a major player in, and which has fueled 2023 rallies in megacap stocks like Microsoft Corp. and Nvidia Corp.

Alphabet has gone “from too slow to too fast in AI” and the “aggressive push to integrate GenAI into core search results could create a near-term air pocket on search ad pricing,” Bernstein wrote.

The downgrade brings Alphabet's consensus rating — a proxy for its ratio of buy, hold, and sell ratings — to 4.655 out of five, the lowest for the stock since April 2018. A year ago, the consensus stood at 4.961 out of five.

UBS downgraded Alphabet to neutral on Monday, writing that AI-related revenue “may take time to optimize,” and that “it's difficult to see upside to our current high-single-digit Sites growth estimates and consensus calls for acceleration to 11%.”

Alphabet is not the only megacap seeing a moderation in sentiment. The consensus rating for Apple Inc. is at its lowest since November 2020, while Microsoft's is at levels last seen in mid-2019.

Still, Wall Street remains predominantly bullish on Alphabet, as about 85% of analysts continue to recommend buying the stock. Even Bernstein is positive, writing that the stock is “akin to a warm hug” and “we hope to be back soon.”