Alphabet Inc.
But Carlson, who runs stock analysis platform Qualtrim, isn't selling. He believes Wall Street is overreacting to slowing search revenue and overlooking an increasingly attractive valuation.
"I don't plan on selling any of it," Carlson said in a video Thursday.
Carlson calculates that at about $285 a share, Alphabet trades at 18.6 times estimated 2027 earnings and 15.5 times projected 2028 earnings.
Those figures exclude volatile investment gains and losses, including billions in SpaceX investment losses that distorted Alphabet's latest results.
"I don't see anything here that should warrant a 12% price reduction in the stock," Carlson said.
Carlson Pushes Back on AI Search Fears
Google Search revenue growth slowed to 12% in the third quarter from 17% in the second, raising concerns that AI is undermining its most profitable business.
On CNBC, Deepwater Asset Management's Gene Munster dismissed Google's explanations as "excuses," warning that search growth could slow further in the December quarter.
Carlson challenged Munster for overlooking management's explanations for the slowing search revenue.
"He didn't even address them," Carlson said.
Management said foreign exchange was the largest single contributor to the slowdown in search growth. Some Asia-Pacific advertisers were also affected by the EU ending its duty-free exemption for low-value imports, while World Cup spending boosted the previous quarter.
However, Google acknowledged that AI Mode currently earns less advertising revenue per query than traditional Search.
"They're willing to cannibalize that business," Carlson said.
He believes Google is deliberately shifting users toward AI-powered search and will improve advertising revenue from the new product over time.
Cloud Growth Comes at a Cost
Carlson highlighted Google Cloud, where revenue surged 103% to $30.7 billion, with operating margins exceeding 36%.
He noted that Google Cloud CEO Thomas Kurian joined the earnings call for the first time, which he sees as a sign the company wants investors to look beyond Search.
He expects Cloud eventually to overtake Search as Google's biggest revenue source.
But the expansion is expensive. Alphabet spent $51.4 billion on capital expenditure and recorded negative $9.1 billion in free cash flow, partly reflecting TPU inventory purchases and a $5.2 billion payment on a 2018 European Commission fine.
Carlson contrasted Google's spending with Microsoft Corp.
Microsoft generated $18.6 billion in free cash flow last quarter, giving it a $28 billion advantage over Alphabet.
Despite his optimism, Carlson acknowledged that AI concerns could weigh on Google shares for a couple of quarters, perhaps a year.
"I don't necessarily believe you need to rush out and buy Google stock today," he said.
