What do Wingstop (WING) , Cheesecake Factory and Alphabet have in common?
They’ve been given the heave-ho from Wedbush’s most favored equities, the Best Ideas List.
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Admittedly, the investment firm dropped the chicken-wing restaurant chain and the dessert emporium (CAKE) with its War-and-Peace-sized menu only because the analyst left.
Google’s parent, (GOOGL) however, is another story.
“We believe Alphabet shares remain compelling on a long-term basis,” the investment firm said in a May 12 note.
Sundar Pichai is CEO of Alphabet, the search, advertising and cloud-services giant. The company faces a challenge to its search model from artificial intelligence.
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Wedbush: Google needs time to adjust
But the firm pulled Alphabet from its Best Ideas List because the shares have been volatile since investors and analysts are uncertain about how artificial intelligence will affect its business model.
The Best Ideas List includes the equities rated most highly by the firm’s analysts and vetted by the investment committee.
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“While we expect Alphabet will be able to prove it can withstand the emergence of a new technology, we anticipate that it will take time and potentially leave the shares at a discount to fair value,” the firm said.
Alphabet shares currently trade at less than 16 times estimated 2026 earnings, a discount to the slower-growing S&P 500 average of 19 times, Wedbush wrote.
The stock of the Mountain View, Calif., search, advertising and cloud-services giant is down 16.2% since January, and off 6% from a year ago.
Alphabet posted first-quarter earnings on April 24 and successfully came in above Wall Street estimates, reporting a 12% revenue increase.
D.A. Davidson analyst Gil Luria, who rates the stock neutral, called for a complete Alphabet breakup, according to Investors Business Daily.
His comments came amid two U.S. Department of Justice antitrust cases versus Alphabet, one focusing on the internet search business and the other on its advertising business.
“Investors want a big-bang breakup, not isolated spinoffs,” Luria said.
“We believe the company is headed towards an eventual passive-aggressive spinoff of (the advertising) network and possibly Chrome/Android to appease [the] Department of Justice, likely only after they drag their feet for a while,” he added.
The analyst said he realized that a breakup “would cause dis-synergies and that management is trying to maximize profit at the Alphabet level, but investors are much more interested in total shareholder value, not short-term profits.”
“Until management acts in the interest of shareholders, the entire business will trade at 16 times earnings, which assigns zero value to Waymo and severely undervalues YouTube, cloud and the ad network,” Luria said. Waymo is Alphabet’s autonomous vehicle technology subsidiary.
Alphabet dealing with court cases
In April, federal judge Leonie Brinkema ruled that Google parent Alphabet had used classic monopoly-building tactics to dominate online advertising.
Last year, U.S. Judge Amit Mehta ruled that Alphabet illegally maintained a monopoly over online search services and prevented rivals from developing their own products.
On top of all that, Texas Attorney General Ken Paxton said Google would pay the state a $1.375 billion settlement “for unlawfully tracking and collecting users’ private data regarding geolocation, incognito searches, and biometric data.”
The Texas attorney general in July 2024 obtained a $1.4 billion settlement from Facebook parent Meta Platforms (META) to resolve claims of unauthorized use of biometric data belonging to Facebook and Instagram use.
Alphabet shares fell on May 7 when Eddy Cue, Apple’s (AAPL) services chief, said that he believed that AI search engines would eventually replace standard search engines such as Google.
Cue said he expected to add artificial intelligence services from OpenAI, Perplexity and Anthropic as search options in Apple’s Safari browser, according to Bloomberg.
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Google is currently the default search option for Apple’s browser. Google pays Apple $20 billion annually for that position.
Alphabet said in a statement that it continued to see overall query growth in search, including “an increase in total queries coming from Apple’s devices and platforms.”
The European Union in 2023 filed an antitrust case against Google, charging that the company abused its power in the online advertising market to disadvantage its competition.
“In this tense geopolitical environment this [DoJ proposal] is good news for the European Commission,” Damien Geradin, an antitrust lawyer who represents news publishers filing complaints against Google in Europe, told Politico.
At a time when the EU executive is “concerned not to aggravate the U.S. administration,” the European Commission “can operate under the cover of the DoJ,” as it can claim it is doing “the same thing,” Geradin said.
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