Alphabet (NASDAQ:GOOG) shares have been falling this week after a disappointing promo for Bard – the company’s AI chatbot. But is this a buying opportunity for me?
I think so – I’ve been buying the stock this week as the price comes down. There are genuine risks with Alphabet stock, but the share price decline looks like an overreaction to me.
What’s the problem?
Alphabet depends heavily on Google for its revenue and profit. Google Search accounts for 56% of total revenues and Google Services is the company’s only profitable segment.
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Until recently, this wasn’t a problem. In fact, it was probably a good thing.
Google’s dominant position in the online search market mean that it was able to generate impressive cash flows. And its low capital requirements allowed Alphabet to maintain strong profit margins.
Recently, though, Microsoft’s intention to integrate ChatGPT into its own search engine has emerged as a genuine threat to Google’s position. In response, Alphabet came up with Bard.
Alphabet’s demonstration of its AI chatbot this week, though, was a disaster. Bard reported information about the James Webb telescope that was false.
As a result, Alphabet shares fell 12% on fears that the company is losing its grip on the online search market. And since that’s where nearly all of its cash comes from, that could be serious.
Should I be worried?
I own Alphabet shares in my portfolio. The blundered demonstration is a bad thing, but I think that the market sell-off is an overreaction.
As an Alphabet shareholder, I think I should be worried only if there’s a material threat of Google losing its dominant position in the online search market. I don’t see such a risk, yet.
Bard’s inaccuracy isn’t impressive. But it’s not obvious to me that ChatGPT is any better when it comes to accuracy.
From what I’ve read, the main objection to ChatGPT is that it confidently reports incorrect information. And I’m not sure that there’s any way to correct this – for either company.
The threat of inaccurate information is, to my mind, likely to slow down the adoption of AI-based search. And that’s good for Google’s current market position.
Buying the dip
I’m not convinced about the prospects for AI-based search replacing the status quo. I’ll be keeping a close eye on the situation, though. Alphabet’s dependence on Google for its revenue means that the implications of it being displaced are significant.
Even if I’m right about Google’s search engine maintaining its position, there’s still a risk for me. The idea of the company investing heavily into a dead end doesn’t thrill me.
At the moment, though, I think that Alphabet shares are just too cheap to ignore. That’s why I’ve been buying the stock for my portfolio.
