We’re downgrading our rating on one tech stock in the portfolio whose AI initiatives may be lagging its competitors and increasing the price target on another that is gaining market share. Alphabet (GOOGL) : Alphabet shares are slipping about 3% Monday afternoon after The New York Times reported Samsung is considering switching Google with Microsoft’s Bing as the default search engine on its devices. Keep in mind that this could all be one big negotiation tactic on Samsung’s end. According to the report, the deal between Samsung and Google is up for renewal soon and is estimated to be worth about $3 billion of revenue to Google. Why is Alphabet shedding about $50 billion of market cap today on a story about a revenue stream that brings in about $3 billion per year? It is confirmation that competition in the search industry is heating up, especially with more and more people interested in using AI chatbots. To be clear, we don’t expect Alphabet’s stronghold on the search industry — and its more than 90% share of the industry, according to StatCounter — to go away any time soon. Google search has become too ingrained in today’s society. However, when you dominate such a large percentage of something, even a few-percentage-point loss can make a difference. That’s what we are worried about. Further adding complexity to this story is Alphabet’s current antitrust case with the Department of Justice . Given the mounting uncertainties facing the tech giant, it is only prudent to downgrade our rating to a 2 from a 1. This means we would rather be buyers on a pullback until we get more clarity into how the company will improve its AI positioning. And with GOOGL shares outperforming the broader market this year with its 19% gain, we would lighten up on our big position and sell some stock if we weren’t restricted. Palo Alto Networks (PANW): Shares of this leader in cybersecurity are brushing up against our initial price target of $200. From the time of our February initiation to today, PANW was able to rally nearly 15% thanks to an explosive earnings-per-share beat and full-year outlook raise. This not only confirmed that security is one of the most resilient corners of technology spending, but also that Palo Alto was winning business as the cloud security market consolidates around fewer platforms. Management’s disciplined approach to profitability was also cheered by the market as the company delivered its third consecutive quarter of GAAP profitability and achieved GAAP profitability on a cumulative basis for the last four quarters. That makes PANW eligible for inclusion into the S & P 500. We expect Palo Alto’s stock to get a big pop if and when it gets added to the index. Even though the stock has made a nice run this year, up 43%, there is still room to run here. We are increasing our price target to $230 from $200. (Jim Cramer’s Charitable Trust is long GOOGL and PANW. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
We’re downgrading our rating on one tech stock in the portfolio whose AI initiatives may be lagging its competitors and increasing the price target on another that is gaining market share.
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