Google's ChatGPT competitor is a big deal, but the company's earnings point to near-term struggles, Gene Munster says

ChatGPT artificial intelligence investing advice
ChatGPT has surged in popularity over recent months.Thinkhubstudio/Getty Images
  • Google's ChatGPT competitor is promising, but the company still faces near-term struggles, Gene Munster said.

  • Analysts will need to revise their earnings expectations down over the next few months, he predicted.

  • "I think that the numbers for the March quarter need to come down," Munster said.

Google's plans for a ChatGPT competitor are a big deal, but the company will still face struggles as earnings expectations come down for the coming quarter, according to Deepwater Asset Management's Gene Munster.

Munster pointed to the earnings call for Alphabet's most recent quarter, during which Google CFO Ruth Porat said the company would be honing its focus on artificial intelligence. Notably, Google is developing a competitor to ChatGPT, the buzzy artificial intelligence bot that can spit out sophisticated prose and has captivated Wall Street investors.

"That's a big deal, because ultimately if they can integrate a ChatGPT version into the power of their search … that's something ChatGPT doesn't do today," Munster said in an interview on CNBC on Wednesday, adding that Google has been calling itself an AI company since 2016. That's makes the company one of the best-positioned to do something "big" in the AI space, he said, calling the company's rival to ChatGPT a "lever" for long-term investor optimism.

But while Munster was bullish on Google's performance in the long-run, that doesn't take away from its recent earnings report, which disappointed investors and caused Alphabet stock to drop 6% in after-hours trading on Wednesday. The Google parent reported a revenue of $63.12 billion in the fourth quarter, lower from the expected $63.2 billion, and earnings per share clocked in at $1.05 compared to the expected $1.18.

But still, Alphabet expects revenue growth to clock in at 3% over the next quarter, while other mega-cap internet stocks are expecting relatively flat returns.

"I think that the numbers for the March quarter need to come down," Munster said, predicting analysts to slash their earnings expectations for the Alphabet in the coming weeks.

That comes after a difficult year for tech giant, which saw its shares decline 39% last year amid rising inflation and rising interest rates, which have weighed heavily on demand for online advertising. Recently, Google axed 12,000 of its workers due to a "different economic reality" than seen in previous years, which has added to the layoffs sweeping the tech sector.

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