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Analysts are still bullish on Alphabet despite a news report that Samsung is considering replacing Google as the default search engine on its devices. A weekend report from The New York Times said Samsung is thinking of switching its default search engine to Microsoft’s Bing. Samsung represents roughly 27% of the smartphone market and has a 60% share of Android phones, according to Barclays. Alphabet shares closed lower by more than 2% on Monday and are down less than 1% Tuesday. Barclays estimates that Samsung represents about $20 billion of Google’s gross revenue and $7.3 billion of operating income. If the cellphone maker were to move away from the search engine, Google may have to recapture 70% of lost queries organically to recoup the lost operating income, the firm found. But analysts at firms including UBS and Evercore ISI remain upbeat on Alphabet’s stock. They note that Samsung could simply be posturing in order to get a better deal from Google in their latest round of negotiations. “We see the risk as low because 1) if consumers shift defaults back to Google, Samsung risks getting no rev-share at all and 2) we think Microsoft would struggle to monetize like Google – given the scale of its ad business (UBS Software Team ests Bing gross revs at $10.5B in FY23), esp outside the US,” UBS analyst Lloyd Walmsley wrote in a Monday note. UBS maintained its buy rating on Alphabet with a price target of $123 per share, which represents roughly 16% upside from Monday’s closing price. GOOGL YTD mountain Shares of Google-parent Alphabet are trading lower again on Tuesday after a Monday report from the New York Times disclosed a possible switch to Bing search for Samsung smart phones. Elsewhere, Evercore ISI’s Mark Mahaney reiterated an outperform rating on Alphabet on Tuesday. He thinks Google will remain the search engine heavyweight and successfully integrate Bard to rival Bing’s use of ChatGPT. “We believe the market may under-appreciate the strength of Google’s existing LLMs (large language models) like Bard (which we have tested over the past few weeks), and our working assumption is that Google will successfully rebuild its Search engine to include LLM responses when appropriate, maintaining both its Search market share and its very profitable unit economics,” Mahaney said. Evercore has a price target of $125 per share on Alphabet, which equates to roughly 18% upside from Monday’s close. Bank of America is also sticking with its buy rating for Alphabet and has a $125 price target. The firm is bullish on the stock, but noted the potential long-term headwinds that a deal between Microsoft and Samsung would bring. “As of now, the impact of AI chat integration on future search share is open for debate, but a change in a large distribution deal could fuel the bear case on Google,” Bank of America research analyst Justin Post wrote on Monday. “At the very least, Apple and Samsung could try to leverage a renewed Bing for better economics vs. Google, so we see Google’s strong consumer brand value and Google making high-profile progress in search results as imperative.” Barclays rates Alphabet as overweight with the most bullish outlook for the stock with a $160 price target, which represents more than 50% upside. The firm posits that Samsung could take a step even further in moving away from Google given that Microsoft could launch a new app store , although it may be too early to predict. “It’s possible that Samsung is just moving away from Google entirely, in light of the possibility of the Android economics going away,” Barclays internet analyst Ross Sandler wrote on Monday. “But it also begs the question of whether the governments world-wide will view a Samsung-Microsoft partnership as good news from a competitive standpoint, or whether it’s just two more mega-cap technology players entering tying agreements.” — CNBC’s Michael Bloom contributed to this report.
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