Google: The Innovator’s Dilemma

Summary:

• Google’s search monopoly is at risk due to AI advancements, potentially impacting its $200 billion revenue and high margins, despite recent double-digit growth.
• Implementing AI in search presents challenges and risks, including reduced advertising profitability and increased computational costs, which could affect Google’s core business margins.
• YouTube and Google Cloud show strong growth potential, with YouTube’s virtuous circle and Google’s AI and data processing innovations positioning them well in their respective markets.
• Given the uncertainties in Google’s search business, I assign a “Hold” rating, projecting a target price of $238 in a pessimistic scenario and $312 in an optimistic one.

Introduction

Since ChatGPT was unveiled nearly two years ago, much has been written about Google’s (NASDAQ:GOOG), (NASDAQ:GOOGL) long-term future and how AI will impact its business. So far, it seems clear that it hasn’t had too much

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