Investors say underperforming Alphabet is a buying opportunity as it rights its AI missteps

Published Sun, Mar 31 20248:08 AM EDT

Alphabet needs to correct its artificial intelligence flubs and prove its monetization potential if it hopes to renew investors confidence. For years, the technology giant's been at the forefront of the technology, establishing a dominant position in search and rolling out large language models and tools that wooed consumers and investors alike. But the stock's come under pressure in recent months, lagging both the general market and many of its megacap peers amid a raft of AI mishaps that have bruised its reputation. Year to date, shares have added just 8%, versus tech peers Microsoft, Meta Platforms and Nvidia up 12%, 37% and 82%, respectively. GOOGL YTD mountain Alphabet shares this year "There's uncertainty around the moat," said Jamie Meyers, an analyst at Laffer Tengler Investments. "It's caused the stock to go from a darling stock to a battleground. They're seen right now as a laggard in the AI race." Although Alphabet's lost some of its luster, many view a turnaround as inevitable if the company steps back to resolves it AI issues. Many also regard the recent underperformance as an opportunity to scoop up a stock with long-term potential. "It's an opportunity that is meaningfully underestimated by investors given everything that's happened," said Deepwater Asset Management's Gene Munster. "The broader investing community is losing sight of what is special about Google." Mounting AI worries Despite its long history in making artificial intelligence products, recent technology mishaps have dented the heavyweight's reputation within the investing community. Issues first arose at the company last year when Microsoft-backed OpenAI made a big splash first with its groundbreaking chatbot known as ChatGPT. Alphabet fought back with its Bard competitor, but quickly drew criticism that is was falling behind in the AI war after a flub during an early presentation. While the company appeared to recover, recent mishaps with its image generator that forced the company to pull the tool from the market , drew flashbacks to the incident and fanned concerns about the broader health of the business. "What they've done is fail to deliver a monetizable product and evidence of their capability," said Dan Hanson, a portfolio manager at Neuberger Berman. "They've actually put egg on their face by mis-execution." Investors argue that the main issue isn't Alphabet's lack of capabilities given its long history in data collection, but rather its rushed approach as it works quickly to maintain its competitive advantage, said Michael Sansoterra, chief investment officer at Silvant Capital. "They've been working on AI for years," he said. "I don't think it's that they're not doing the work, they're rushing to show their work." Along with execution issues, investors have also grown frustrated with the company's lack of clear goal and target setting for AI, added Gabelli Funds analyst Hanna Howard. Using the pullback as an opportunity Many investors, however, are finding the positive in Alphabet's recent troubles for their portfolios, and using the recent stock performance as a buying opportunity. Altimeter Capital's Brad Gerstner told CNBC's "Halftime Report" this week that he recently amassed a small position in the company, viewing it as a "super capable" long-term story with search monetization potential once it makes some "structural changes." GOOGL 1Y mountain Alphabet shares over the last year Amid the disheartening headlines, investors have overlooked Alphabet's multi-decade advantage in search data they can harness to train AI model that's a "light year" ahead of companies such as OpenAI, Munster added. Laffer Tengler's Meyers also noted that Alphabet's advantage in personal data, strong user base and dominant market position could give them and edge in AI once they correct their mistakes. "They still have this competitive advantage," said Deepwater's Munster. "What they're lacking is a spark to find ways to monetize that."