Google is ‘going on the offensive:’ What analysts are saying after latest Alphabet earnings

Analysts and investors are breathing a slight sigh of relief after Alphabet’s latest quarterly release, as the results eased concern around the company’s progress on artificial intelligence and the state of tech following a broad-sector sell-off. The Google parent reported first-quarter earnings that beat earnings and revenue expectations. The search engine giant also announced its first-ever dividend and a $70 billion buyback, sending shares 10% higher on Friday to an all-time high. Analysts from major firms, ranging from UBS to Bank of America, were encouraged by accelerated growth in Google Search, Cloud and YouTube seen in the previous quarter. Some touted Alphabet as a new major AI play and believe the tech giant has plenty of room to go. At the same time, some questioned how much the stock can consistently grow against such a large AI spending backdrop. GOOGL YTD mountain Google stock this year. JPMorgan analyst Doug Anmuth reiterated his overweight rating and hiked his price target by $35 to $200, saying he is “incrementally positive” on the tech giant’s ability to drive strong topline growth and achieve gains from its efforts to re-engineer its cost structure. He anticipates Alphabet will increase its spending to around $50 billion this year to support its AI ambitions, like its tech peers. “In terms of AI, after what seemed like a year-plus of coming from behind, we believe GOOGL is beginning to go on the offensive,” Anmuth wrote in a note. “The company is starting to bring AI responses into the main Search results page, & it is seeing an increase in Search engagement & satisfaction among AI users.” “Management also expressed confidence that the shift to Generative AI in Search will expand the Search market opportunity, just as GOOGL saw with the shift to mobile & voice,” Anmuth added. Barclays analyst Ross Sandler’s also shares a bullish view of the stock. “Google is in the sweet spot of accelerating growth, expanding margins while shipping product faster, and returning capital – basically proving the naysayers wrong,” Sandler wrote in a Thursday note, adding that market deceleration and competition are some of the threats that could threaten the stock, but not in the near term. Sandler kept his overweight rating and increased his price target by $27 to $200, which implies 28% potential upside from Thursday’s close. Jefferies’s Brent Thill maintained his buy rating and upped his price target by $20 to $200, saying shares are trading at an attractive valuation. Google’s acceleration in core ad and cloud revenues were a bright spot for Thill, but the analyst remains wary of Google’s spending — which is expected to jump more than 50% this year fueled by AI investments. Oppenheimer analyst Jason Helfstein lifted his price target by $20 to $205 and kept his outperform rating, citing Google’s accelerating ad business as a driver of operating leverage, despite the company’s significant investments in AI. Catalysts for the stock include increased monetization of YouTube and increased profitability at Google Cloud, the analyst said. He anticipates the company’s net ad revenue to grow at a compound annual growth rate of 9% between 2023 and 2026. Still, some analysts expressed some near-term concerns. Bank of America analyst Justin kept his buy rating and $200 price target, believing Alphabet is well-positioned for the long term — even if current revenue suggest the company’s “future pace of growth could be more challenging.” “The quarter beat expectations across all major business lines, supporting a narrative change: Google is a beneficiary of AI. Search is still not without disruption risk, but we remain constructive on Google infrastructure, data and distribution advantages,” Post said in a note. “We think a dividend will support a higher long-term multiple, but expect some deceleration in sector growth in 2Q on a tougher q/q calendar.” Still, Post said Alphabet should trade at a premium to its media peer group given its tech leadership, high margins and strong cash flow generation for buybacks. UBS analyst Ken Gawrelski similarly praised Google’s cost discipline and “overdue” dividend but maintained a partly cautious stance on the stock. He noted it’s “not clear GenAI can drive a big new product cycle” and that certain pockets of advertiser demand could see a slowdown. He reiterated his neutral rating and upped his price target by $7 to $173, particularly because of the growth seen in YouTube, which he noted is set to recover and add roughly $5 billion in revenue during 2024. His target price suggests only about 11% potential upside from Thursday’s close. “Accelerating search growth forestalls our worries about search deceleration but does not change our views on digital ad share loss and risks associated with a search format transition,” Gawrelski said in a note.