Google needs a 'stronger leader': Analyst

Alphabet (GOOGL) stock could benefit from new leadership as it chases OpenAI and Microsoft in the artificial intelligence space, according to one Wall Street analyst.

The company has already notably tapped Google co-founders Larry Page and Sergey Brin to help innovate in A.I. But Needham & Company’s Laura Martin argues Sundar Pichai’s leadership, particularly the company’s inability to rally employees together, has held Google back in the A.I. arms race.

Alphabet could benefit from breaking the company into smaller units too, Martin wrote in a note to clients on Monday. Martin argues YouTube’s estimated standalone value of $300 billion could provide shareholder value.

Alphabet shares are down about 25% over the last year.

In the video above, Martin discusses the outlook for Alphabet with Yahoo Finance’s Dave Briggs and Seana Smith.

Key video takeaways:

00:00:05 - Why Google isn’t a product leader

00:01:03 - Wall street’s take on Alphabet’s leadership

Video Transcript

LAURA MARTIN: We put out a piece today saying they have a product problem, as evidenced by the fact that they and Meta together, five years ago, had 80% of the total and full-time employees working on AI, but yet, ChatGPT beat them to market. And when they tried to demo Baird, it was a poor substitute. So now ChatGPT, this upstart, is now threatening the core search business.

So our point of view is this is a company that doesn't have a new product commercialization culture. Therefore, should be broken up, so that the individual pieces like YouTube or like Android are forced to live by Wall Street mandates of running a real business, not just being subsidized by that fabulous search engine that has 80% margins.

SEANA SMITH: Laura, how should we be looking at who's in charge? Because that's something that you brought up in your note, but taking a step back here, Sundar Pichai obviously at the helm here of Alphabet. Is he the right person to be leading the company at this point?

LAURA MARTIN: I think Wall Street does not think so. I think that they are just far too-- it's like the inmates are running the prison right now. They need a stronger leader that says, look, guys, we work for a business. And the business has to make money. And you employees who don't want us working with the immigration service and don't want to work us with the DOD, these are massive contracts that last for decades.

And you can really add a lot of value to the US government. Like, I object when they don't allow-- these employees stop Google from getting new business for the US government. Like, I'm confused. So I think new business is good. I think Google is supposed to be running a business. And therefore, I think the inmates need to stop running the prison.