Google Faces New Challenges in the Rise of AI and Agentic AI Capabilities: Analysts Warning
As the tech industry continues to evolve, Google is facing new challenges from the rise of artificial intelligence (AI) and the advent of agentic AI capabilities. According to a recent report by Bank of America analysts, Justin Post and Nitin Bansal, Google's long-standing competitive advantages may be eroding as the starting point for access to information and transactions shifts from browser-based to mobile operating system (O/S) and app-based platforms.
The analysts identified three key threats to Google's dominance: OpenAI's rapid scaling and potential introduction of ads, Meta's potential launch of agentic AI capabilities to its 1 billion assistant users, and Amazon's development of an agent that can shop across other sites. Despite these challenges, the analysts retained a buy rating on Alphabet's stock, with a price objective of $200/$200, based on expectations for double-digit revenue growth, cloud margin expansion, and the opportunity to capitalize on strong AI assets.
However, the report also highlighted concerns about the potential for "zero-click" searches, where users get their answers directly on the search page without visiting any website. This trend could lead to fewer websites offering valuable content and a deterioration in search quality, creating a "serpent eating its tail" scenario.
The rise of AI-powered search services is not only a threat to Google but also to the broader internet ecosystem. As more users turn to chatbots and other AI-powered tools for their queries, websites that create valuable content may see a decrease in traffic. This could lead to fewer websites offering good content and a decline in the overall quality of search results.
The report also noted that Americans across all demographic groups trust information produced by mainstream media journalists more than AI-generated information. According to a study by Katherine Ognyanova and Vivek Singh from Rutgers University, 62% of Americans trust journalistic content "some" or "a lot," compared to 48% who trust AI content. This suggests that people may have short memories and that previous AI-related scandals are now ancient history.
In conclusion, while Google remains a dominant player in the tech industry, it faces new challenges from the rise of AI and agentic AI capabilities. The shift towards mobile O/S and app-based platforms could erode Google's long-standing competitive advantages, and the rise of "zero-click" searches could lead to a decline in the quality of search results. However, with expectations for double-digit revenue growth and strong AI assets, Google remains a compelling investment opportunity for investors.
