Why GOOG Stock Is NOT Your Best Generative AI Bet

Stock Market

If there’s an arms race in generative artificial intelligence, Google parent Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) definitely isn’t in the lead position. It’s going to be very difficult for Alphabet to catch up to Microsoft (NASDAQ:MSFT) in that area, and value-conscious investors should be cautious about GOOG stock in 2023.

Microsoft is integrating generative AI technology quickly and effectively into its popular software programs. In particular, Microsoft has embedded OpenAI’s ChatGPT features into the Bing search engine and Edge browser, and is integrating it into the Office 365 productivity suite and the Azure cloud computing platform.

Alphabet really needs to move fast, as there’s a lot at stake here. The company could even lose its crown as the search engine king. You might decide to sit on the sidelines instead of investing in Alphabet now.

GOOG Alphabet $106.71

GOOG Stock Isn’t a Screaming Buy

Before delving into the machine learning war, it’s a good time to speak directly to value-focused investors. 2022 was a rough time for technology stocks. Does this mean GOOG stock is a compelling, beaten-down value play?

Not necessarily. Alphabet recently had four consecutive quarterly earnings per share (EPS) misses. Thus, the company still has to justify its bloated $1.4 trillion market capitalization.

Alphabet’s trailing 12-month GAAP price-to-earnings (P/E) ratio of 22.92x is significantly higher than the sector median of 19.42x. Even more inflated are Alphabet’s trailing price-to-book (P/B) ratio of 5.24x (sector median is 1.72x) and trailing price-to-sales (P/S) ratio of 4.83x (sector median is 1.28x). So, don’t assume that a distressed share price always translates to a good value.

Alphabet’s Bard Was Found to Have Problems

Recently, Alphabet CEO Sundar Pichai “dismissed the notion that chatbots posed a threat to Google’s search business” (according to The Wall Street Journal). That’s surprising, considering the major threat that Microsoft’s AI-enhanced Bing poses to Google. Should Pichai be so dismissive?

Let’s be honest. Bard, Alphabet’s answer to OpenAI, hasn’t been nearly as buzzworthy as OpenAI. When people talk about the fast-growing field of generative/conversational AI, they’re probably not talking about Bard.

Besides, Bard is far from perfect. Allegedly, a study found that Bard generated potentially hateful/harmful content on a variety of controversial topics.

This suggests that Bard, in its current form at least, may not be appropriate for schools and workplaces. It’s just another sign that, for the foreseeable future, Microsoft will likely continue to eat Alphabet’s lunch in generative/conversational AI.

There’s No Hurry to Buy GOOG Stock

Don’t get the wrong idea here. Alphabet’s Google is still the king of U.S. search engines. However, Microsoft and other companies could steal market share from Google, and that would spell trouble for Alphabet.

Shares of Alphabet don’t look like a great value at the moment. This could change in the coming quarters, but investors want to know whether it makes sense to buy GOOG stock today. Most likely, the best policy would be to stay on the sidelines and continue to monitor Alphabet, Microsoft and the AI arms race.

On the date of publication, Louis Navellier had long positions in GOOG and MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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