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Alphabet (NASDAQ:GOOGL) Gemini, an AI image generator, recently caused controversy with its output featuring racially diverse Nazis, a female pope, and a black founding father. Whether you find these pieces ridiculously hilarious or insulting, there’s no doubt that they represent a significant setback for Google’s Gen AI efforts. Meanwhile, Google has stopped using the tool to address these issues.
This has added to Alphabet’s turbulent year this year, with its stock price down 6% while the S&P 500 index rose 7%.
As embarrassing as Gemini’s problems were, JPMorgan analyst Doug Anmas believes there are other reasons for the dip in sentiment.
“Investor dissatisfaction has boiled over recent Gemini issues, a sign of uncertainty regarding the future growth and position of search in the world of artificial intelligence, and a lack of clear goals and objectives in redesigning the cost structure.” “We also believe that there is a need for a larger return on capital (including dividends), and a simple comparison with Meta, where everything appears to be done correctly, is harsh,” the analyst explained. “With closing arguments just two months away in the Justice Department’s case over commercial contracts with Apple and Android OEMs, investment litigation is becoming even more complex.”
That said, Anmas insists it would be a mistake to write off tech giants. The analyst believes the company’s fourth-quarter results were strong, but it will have to contend with Meta’s strong performance, and Gemini’s text and image generation issues have made Google a real issue among investors. That raises questions about its ability to keep pace with developments in the technology it has pioneered, analysts said. Google remains confident it can “get Gemini back on track and begin closing the Gen AI gap with Microsoft and OpenAI.”
Additionally, the company will ultimately benefit further from its ongoing “restructuring of its cost structure.” Mr Anmas also expects the share buyback program of $70 billion in each of the past two years to improve, while dividends could be introduced, and believes capital returns will be transformed. . “We believe that dividends can expand the potential investor base, but our conversations suggest that it would take significant size (2%+ yield?) for dividends to really matter. , suggests this needs to be done in conjunction with other improvements across Google’s business to make a real difference,” the analysts summed up.
In conclusion, Anmuth rates GOOGL an Overweight (i.e. Buy) with a price target of $165, suggesting the stock could appreciate ~26% in one year. (Click here to see Anmuth’s track record)
Anmas’ GOOGL bullish camp includes 28 analysts, with 8 currently holding, but maintains that the company’s consensus rating remains a Strong Buy. The average goal is about the same as Anmas’s goal. At $164.59, this figure gives him room for up to a 25% 12-month return. (look Alphabet stock price prediction)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. Content is for informational purposes only. It is very important to perform your own analysis before making any investment.
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