Google shares to continue to trade at a discount to other mega-caps - DA Davidson

Investing.com -- DA Davidson analysts initiated Alphabet (NASDAQ:GOOGL ) with a Neutral rating and $170 per share price target in a note Tuesday, saying it is facing challenges in its core Search business, and its future growth may depend on other parts of its portfolio.

However, the firm sees Alphabet's positioning in these areas as mixed, leading them to expect the stock to continue trading at a discount compared to other mega-cap companies.

The analysts highlight that Alphabet is at a critical point in its evolution, stating that it "will either be 'Xeroxed' or emerge as a leader in the most important new categories of Compute."

They draw a parallel between Google's current situation and Xerox (NASDAQ:XRX ) in the 1980s, which invented much of the technology behind the PC but watched companies like Microsoft (NASDAQ:MSFT ) and Apple (NASDAQ:AAPL ) capitalize on it.

DA Davidson expresses concern over Google's slower response to the introduction of AI services, particularly with Microsoft's rapid commercialization of AI over the past 18 months.

While they believe Alphabet has shown some encouraging signs, such as the reacceleration of Google Cloud Platform (GCP) and its potential to achieve AI product parity, DA Davidson points out that Google has made notable missteps.

One example is the under-commercialization of Google TPUs, a viable alternative to NVIDIA (NASDAQ:NVDA ) GPUs, which have missed capturing much of the $3 trillion hardware market.

Shorter-term, Google faces the challenge of transitioning from a 90% market share in Search to something less, as AI-enhanced search tools gain prominence. Coupled with the Department of Justice charges that may limit its monopoly, Google's path forward looks uncertain, according to the firm.

DA Davidson concludes that without more aggressive strategies, Google's stock will likely continue to trade at a discount.

Source: Investing.com