Google parent Alphabet Inc (NASDAQ:GOOG) is facing "a pivotal year" in 2025 from regulation and artificial intelligence competition, Bank of America reckons, though analysts kept their 'buy' rating in place.
In, the stock's 35% gain saw it outperform the 23% from the S&P 500 as concerns about potential competition from OpenAI-powered products were offset by new product launches, strong cost discipline, improving Cloud growth and positive estimates revisions.
However, the threat of disruption from emerging generative-Al search platforms and an adverse judgment in the Department of Justice search case weighed versus fellow 'Magnificent Seven' peers.
"With search still far overshading value of other businesses, we view 2025 as a pivotal year, which could help establish Google as either an Al leader (via AI Overview traction) or see elevation in search disruption risk," the analysts said.
They listed five potential positives and negatives for the stock.
Suggested positives were: growing usage of AI overviews in Google search (see photo) and new ad opportunities around informational queries; greater appreciation of the company's AI assets and AI driven performance behind Google Cloud and YouTube for example; potential for a different results from the DoJ search case under the new Trump administration; the market giving an increasing value from the cloud business; and new disclosures or cost cuts under Alphabet's new CFO, Anat Ashkenazi.
Potential risks and negatives for the stock encompassed a loss of search volumes due to increasing usage of ChatGPT, Meta AI and, others; an unfavorable remedy ruling in the search case; policy changes under Trump; regulatory issues in Europe; higher AI capex impacts on free cash flow and 2026 margin expectations.
A near-term risk is for first-quater results, where the strong start to 2024 offers a tough comparison.
While BoA cut its estimates for 2025 earnings to below the Wall Street consensus, the analysts said they "see potential for AI Overviews to drive healthy search trends", more friendly DoJ appointees and an encouraging "margin set up" due to a flat headcount and new CFO, who could take some actions on costs.
A price objective of $225, up from $210, is 21 times forecast earnings plus cash, with the shares at just over $192 "particularly attractive".