Bank of America: AI reshape the search landscape, Alphabet (GOOGL.US) enters a new stage of diversified monetization.

Bank of America recently released a research report, stating that Alphabet (GOOGL.US) has shown unique long-term investment attractiveness in the market due to its deep integration of artificial intelligence technology and diversified business layout. After discussing the positive and risk factors separately, the bank reiterated its "buy" rating on Alphabet with a target price of $200. Artificial intelligence is changing the monetization pattern of Alphabet Inc. Class C search The ability of artificial intelligence is changing the way searches are conducted, improving usability and functionality. With the emergence of new capabilities, a multi-layered product monetization structure including subscription services is forming. In this report, the bank explores the driving factors of the search business, including: 1) Continuous growth in revenue scale as the usability of searches improves; 2) Shift from traditional ad-supported searches to paid tiers; 3) Reduction in risk from cost-per-click (CPC) to cost-per-action (CPA) transactions; 4) Competitive catalyst from OpenAI's traffic growth. Do we need new metrics to evaluate search monetization? The increasing popularity of AI Overviews and AI Mode in Alphabet Inc. Class C AI may lead to a decrease in clicks, but it will enable Alphabet Inc. Class C to better interpret query intent through targeted advertising. In addition, Alphabet Inc. Class C's updated SmartBidding framework is expected to expand the applicability of various queries, further supporting AI monetization. With the evolution of Alphabet Inc. Class C's monetization, search metrics (such as paid clicks) may become less important, and monetization key performance indicators (such as average revenue per user ARPU) may better reflect search performance. Multiple perspectives: Advantageous positioning with extensive product coverage The bank notes that Alphabet Inc. Class C's management is increasingly focusing on disclosing the extent of product coverage (15 products with 500 million users). With technical talent, Beijing Vastdata Technology for building AI models, and the ability to drive AI usage and monetization through multiple product distributions, Alphabet Inc. Class C is in a favorable position. In addition to search, Alphabet Inc. Class C will also see growth through GoogleOne subscriptions, Workspace price increases, and Android and ChromeOS system-level integration. The bank expects subscription revenue driven by Gemini to grow to $12 billion by 2027, while the Workspace price increase this year could bring in annual revenue of $1 billion. Bearish perspective: New landscape of internet distribution The starting point for obtaining information and conducting transactions will shift from browser-based to mobile operating systems and applications, with at least five tech giants (Amazon.com, Inc., Apple Inc., Alphabet Inc. Class C, Meta, OpenAI) targeting this opportunity. This shift may weaken Alphabet Inc. Class C's long-standing competitive advantage and reduce its market share. OpenAI, with ample funding and rapid scale expansion, may introduce advertisements, while Meta may introduce AI functions to its one billion helper users, and Amazon.com, Inc. has built a proxy for shopping on other websites. Investment view Bank of America believes that Alphabet still has an advantage in the AI field and reiterates its buy rating with a target stock price of $200 (currently $166). The bank states that in the long term, Alphabet is in a favorable position in applying its leading artificial intelligence technology to search, YouTube, and cloud services. Alphabet is also expected to benefit from the continued growth in mobile app usage, video usage, Google Play activities, and connected car activities (including autonomous driving cars). Given its technological leadership, high profit margins, and strong cash flow generation for stock buybacks, the bank believes that Alphabet's valuation should be higher than that of its media peer group. However, the bank also mentions two points to be cautious about: high AI research and development costs ($75.2 billion invested by 2025) and antitrust lawsuits that may limit Alphabet Inc. Class C's default search settings. In the long term, if AI subscription services and new advertising models succeed, Alphabet Inc. Class C still has growth potential, otherwise it may lose market share to competitors.