BNP Paribas downgraded Alphabet's stock due to weak AI monetization

BNP Paribas downgraded the shares of Alphabet (owner of Google) and no longer advises to buy them. The bank's analysts pointed to weak monetization of Gemini artificial intelligence and risks of slowing profit growth due to AI investments. Alphabet is one of the worst performing Magnificent Seven stocks this year because of concerns about the threat of AI to Google's search revenue. But according to some analysts, this is not a reason for pessimism, but instead a good opportunity for investors.

BNB Paribas downgraded Alphabet shares from Buy to Neutral (consistent with a Hold recommendation), reported Yahoo! Finance. Analyst Stefan Slowinski also lowered his target price on the securities from $213 to $172, down 2.4% from the current price.

«Google has come a long way in developing its Gemini product, culminating in the recent successful launch of the Gemini 2.5 Pro model. However, for now, monetization of Gemini remains limited,» Slowinski wrote. 

Alphabet «will ultimately be the winner in the generative AI race as the company has all the necessary infrastructure,» BNP Pariba believes, but fears that investing in artificial intelligence could slow earnings-per-share growth.

«In addition, the risks of switching to a different business model could impact search advertising revenue growth as Google captures fewer search clicks and looks for new ways to monetize, such as AI Overviews, AI Mode, Live Search and Gemini Assistant (Google's AI features for rapid automated query answering. - Oninvest),» noted Slowinski.

On Monday, June 30, Alphabet shares ended trading at $176.23 per share, losing 1.3% of their value for the day. Since the start of 2025, the securities have fallen in price by nearly 7%. In this, they are behind most other companies from the «Magnificent Seven» and lag behind the technology index Nasdaq 100: it, on the contrary, increased by 8% over the same period.

At the July 1 premarket, Alphabet's securities were falling about 0.5% at one point, but then slowed to a 0.2% decline.

Alphabet shares are rated by 72 analysts, and 60 of them recommend buying the stock (Buy and Overweight ratings). The other 12 recommend holding (Hold). None advise selling. The securities have an average target price of $199.5, suggesting a potential upside of 13% from the June 30 close.

Despite Alphabet's weak stock performance in 2025, last week two analysts at once predicted the company's stock to rise at least 20% last week thanks to its AI successes.

For example, Jefferies analyst Brent Till highlighted five key reasons why Alphabet remains one of the best consumer AI companies. 

- Search leadership. Google holds 90% of the market despite the emergence of artificial intelligence ChatGPT and Perplexity. New AI features like AI Overviews already attract 1.5 billion monthly users.

YouTube is an undervalued asset. Its revenue is 30% higher than Netflix, but the stock trades at a lower market multiple. Till called YouTube a «catalyst» in a world primarily focused on video.

- Gemini is evolving. The proprietary language model analyzes 480 trillion units of text per month - 50 times more than a year ago - and is embedded across the entire Google ecosystem.

- Strong Google Cloud. Google's cloud service is behind Amazon Web Services and Microsoft Azure, but is winning with AI infrastructure and government contracts. Operating margins hit a record 40% in the first quarter of 2025. The company also has $84 billion on hand for stock buybacks and investments.

- Low stock valuation relative to earnings before interest, taxes, depreciation and amortization (EV/EBITDA). It's at 11 - below the 10-year average and recent peaks. The share price now represents an «attractive entry point» and share price-to-earnings ratio for investors, says Jefferies.

Citizens analyst Andrew Boone is not inclined to exaggerate the threat to Google from ChatGPT. According to his words, ChatGPT's influence isn't yet large enough to take much market share away from Google. In addition, Google's AI feature in queries expands the search experience to cover more different types of queries and improves monetization by understanding user intent more accurately, the analyst added.

This article was AI-translated and verified by a human editor