Alphabet Faces AI Backlash


Alphabet has faced Wall Street scrutiny regarding its artificial-intelligence endeavors in the past, but has managed to bounce back from previous setbacks. The recent backlash surrounding an image-generation tool within the Gemini chatbot has once again brought attention to the tech giant’s AI capabilities.

Criticism of Image-Generation Feature

Concerns have arisen over the image-generation feature in the Gemini chatbot, which has been criticized for producing racially insensitive images. Even a Google executive admitted that the generated images were sometimes “inaccurate or even offensive.”

Stock Impact

Following the criticism, Alphabet’s stock prices dropped by more than 4% on Monday, prompting reminders of previous instances where the company’s AI mishaps led to investor backlash. Although Alphabet’s stock has historically recovered from such incidents, analyst Ben Reitzes from Melius Research believes that the company may encounter challenges in the future.

Analyst’s Insights

Reitzes expressed concerns about Google’s rushed and scattered AI launches, questioning whether the company’s reputation has been negatively affected by the image-generation tool debacle.

“If Google is perceived as unreliable in the realm of AI by a segment of the population, it could have detrimental effects on its business,” Reitzes highlighted in a report published on Monday.

Despite pausing the image-generation feature, Google will need to address the fallout and work towards restoring trust among its users and investors.

In light of the increasing influence of AI on user queries, concerns arise regarding Google’s search positioning. The evolving landscape presents opportunities for competitors, especially if users question Google’s objectivity. Despite its dominance in the search market, even minor slip-ups can cause Google to lag behind its peers, as noted by Reitzes.

Hold Rating and Future Outlook

Reitzes maintains a hold rating on Alphabet’s stock, attributing its comparatively low valuation to valid reasons. In his latest communication with clients, Reitzes outlined a wishlist for Alphabet, urging executives to streamline their AI messaging, provide clearer forecasts, and instill confidence in shareholders regarding the company’s performance.

The Competition Landscape

In comparison, companies like Inc., Meta Platforms Inc., Nvidia Corp., and Microsoft are regarded as possessing more intangible assets by Reitzes. He suggests that investing in these companies might yield similar benefits without the perceived drawbacks associated with Alphabet.

In conclusion, while Reitzes acknowledges Google’s strengths, he points out potential vulnerabilities that could impact its future performance in the rapidly evolving tech industry.

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