Google shareholders are reckoning with an unfamiliar concept to start 2015: Downgrades.
Analysts at Stifel Financial and Atlantic Equities dropped their "buy" ratings on Google this month ahead of fourth-quarter earnings, which the Mountain View, California-based company will report after the closing bell on Thursday. The percentage of analysts with "buy" recommendations on the stock fell in January to 79 from 84 in December, the first monthly decline in bullishness since November 2013, according to FactSet.
The tech giant's stock has dropped 8.8 percent in the past year to $512.43 at Wednesday's close, while the S&P 500 has climbed 12 percent.
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Slowing growth in Internet search, a business that Google dominates with some of the highest profit margins in technology, is causing the consternation. For all of the company's ambitious forays into business software, wearable computing, social networking and fiber optic networking, search still drives earnings and is the one market where Google has an undisputed advantage over all its competitors.
Analysts expect Google to report fourth-quarter gross revenue growth of 17 percent to $18.5 billion and an increase in earnings per share to $7.11 from $6.01 a year earlier, according to a survey by Thomson Reuters.
Estimates have come down of late because of the rising dollar and presumed pain it will cause Google, which generates well over half its revenue overseas. Piper Jaffray, for example, lowered its estimate for quarterly sales growth last week by 2 percent "to reflect the current global currency environment."
The dollar's rally is just the latest reason for skepticism.
Atlantic Equities predicts that growth in Google's core search business will decelerate to 12 percent a year through 2016 from the high teens in the last few years. More consumer activity is taking place on smartphones, where search is less lucrative, and while Google is working hard to improve the mobile search experience and maintain its market share, investors are waiting to see results.
"Concern regarding this slowing growth profile has been one factor weighing on the stock's performance over the last couple of months, but we believe this will remain an overhang until search trends improve, something we believe could take a number of quarters," wrote James Cordwell, an analyst at Atlantic Equities, in a Jan. 12 report. "Google's initiatives to improve mobile search monetization could take some time to gain traction."
Cordwell cut his rating to "neutral" and lowered his price target to $560 from $692.
Four days earlier, Stifel analyst Scott Devitt reduced his rating on Google shares to "hold." For Devitt, the problem is that Google's higher-growth businesses like YouTube and the Google Play store bring with them lower margins.
Devitt predicts Google's operating margin will drop from 29 percent in 2013 to between 26 percent and 27 percent from 2014 through 2016. With younger companies like Facebook and Twitter vying for mobile ad dollars, brands can spread their spending and force Google to compete on price.
"Google was the undoubted leader of the online advertising subsector in the last Internet cycle," Devitt wrote. "However, Google is now joined by companies such as Facebook, which is increasingly taking share of the incremental ad dollars that are transitioning from offline to online."
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A Google spokesperson didn't respond to a request for comment.
Even with bearishness on the rise, analysts remain overwhelmingly positive on Google shares, according to FactSet data. That's partly because the selloff in the company's stock over the past year has cut its price-to-earnings ratio to 27 from 31 at the end of 2013.
BGC Partners analyst Colin Gillis, in a report on Monday, called Google "one of the most attractive investment opportunities in our coverage." Gillis's "buy" rating has a $650 price target.
In addition to having one of the better currency hedging strategies, Google will do fine because "the stronger U.S. holiday season may help offset the negative impact from currency," Gillis wrote.