Alphabet's Stock Soars on AI Advancements and Strong Q2 Expectations

BofA lifts target on Alphabet shares, cites AI search improvements By Investing.com

Bank of America Securities raised their price objective on Alphabet (NASDAQ:GOOGL) stock ahead of the tech giant's forthcoming Q2 earnings report, saying AI search improvements and headcount measures are "likely to drive upside." Analysts at Bank of America Securities anticipate a positive earnings report for Alphabet, which is scheduled to come out on July 23. Ahead of the print, they have slightly increased their Search revenue growth estimates to 12% year-over-year and forecast Q2 revenue and GAAP EPS at $70.9 billion and $1.91, respectively, above Street estimates. Analysts attribute the positive outlook to AI integrations driving higher usage and ad click-through rates, stable Search revenue aided by improved macroeconomic conditions, and strong YouTube performance from Shorts monetization. They also expect flat year-over-year headcount growth, ongoing restructuring to reduce costs, operating expenses of $22.7 billion, and core margins to increase by 183 basis points to 37.2%. Moreover, higher other income is expected to contribute to earnings per share (EPS) upside. "We remain positive on growing AI integrations across Google's ecosystem and think a broader rollout of AI overviews will help drive higher activity in the core Search business," analysts at Bank of America Securities highlighted. "AI use poses a long-term competitive risk, but in the near-term, we think revenue upside from AI driven monetization improvements will be a key 2Q takeaway." Also, focused expense management is projected to drive year-over-year margin growth in 2024, potentially boosting EPS. Citing a market multiple expansion from lower rates, analysts at Bank of America Securities have raised their price target to $206 from $200. Looking further ahead, Bank of America Securities said the second half of the year could be more challenging, due to a complex setup with slowing Search growth due to tougher comparisons, the launch of OpenAI's search, and outcomes from the Department of Justice (DOJ) trials.

Analysts revamp Google parent stock price target into Q2 earnings

Alphabet shares edged lower in early Wednesday trading, following a broader decline in megacap tech stocks and despite a bullish note from a key Wall Street analyst heading into its second-quarter earnings report next week. The Google (GOOGL) parent has been one of the top performing Magnificent 7 stocks so far this year, adding more than $520 billion in market value. Investors are betting that its drive into artificial-intelligence technologies, as well as its ongoing dominance in search and ad sales, will cement the group's position in the new global tech framework. Alphabet in fact flexed some of that recently added muscle this week when it was reportedly linked to advanced talks to buy cybersecurity startup Wiz for around $23 billion, That move would mark its biggest-ever acquisition and a bold challenge to current U.S. tech regulations by Chief Executive Sundar Pichai. Separate reports also suggest that Pichai abandoned early talks with online marketing software group HubSpot, which could have valued the Boston group at around $25 billion. Analysts at BMO Capital Markets, however, see Google's legacy dominance in online search, supported in part by the introduction of it AI-powered Gemini chatbot, providing a more tangible near-term boost for the stock and its prospects heading into next week's Q2 earnings report. Google search gives a boost BMO analysts see search generating around $197 billion in revenue this year, a tally it expects to rise to $217 billion in 2025. "Search share has increased by [1.3 percentage points] in the U.S. and [3.1 percentage points] globally over the past year, attributed to repeat query behavior and the proliferation of chatbots embedded in most apps," the investment bank said in a note. Its analysts lifted its Alphabet price target by $7 to $222 a share. "Consequently, we are raising our [second-quarter] search estimate to +13.5% year-over-year from 13%, given continued strength across verticals and better-than-expected channel checks," the team added. Related: Google could make its biggest acquisition ever: What is Wiz? Google's AI push is also adding heft to YouTube, which BMO analysts say is benefiting from increased user engagement and more effective ad monetization. A further pullback in ad spending on TikTok is providing a further boost. This spring President Joe Biden signed legislation that gives China-based ByteDance, TikTok's parent, until Jan. 19 to divest its U.S. assets or face a complete ban in the world's largest economy. AI benefits for YouTube "We now expect YouTube revenue to reach $37 billion in 2024 and $43 billion in 2025, compared to previous estimates of $36.5 billion and $42 billion," BMO said. "We also predict significant growth for Google cloud, driven by dual-cloud adoption among enterprises," BMO said. "We model a 28% growth for Google Cloud, with potential upside in the second half of 2024 due to growth in gen AI workloads and easier comparisons relative to" the first half. Alphabet is scheduled to report for Q2 after the close of trading on July 23, with analysts looking for a bottom line of $1.84 a share on revenue of around $84.2 billion. More AI Stocks: In April the Mountain View, Calif., group unveiled plans for its first-ever dividend following stronger-than-expected first-quarter earnings as well as details of a $70 billion stock buyback. The two moves were seen as an attempt to soften the blow of accelerated AI- and capital-spending plans. Related: Analysts reboot Google parent stock price target ahead of earnings Google doled out $12 billion in capital expense over Q1, with outgoing Chief Financial Officer Ruth Porat telling investors to expect higher spending through to at least year's end. Alphabet shares were marked 0.46% lower in premarket trading to indicate an opening bell price of $184.50 each. Such a move would still leave the stock more than 30% higher for the year. Related: Veteran fund manager sees world of pain coming for stocks

Google Parent Alphabet's Q2 Expected To Shine With AI, YouTube Shorts, Cloud Strength: Analyst - Alphabet (NASDAQ:GOOGL)

Analyst Justin Post cites AI-driven ad spend, Shorts monetization, and cloud growth as key revenue drivers. Bank of America Securities analyst Justin Post maintained Alphabet Inc GOOGL with a Buy and raised the price target from $200 to $206. Alphabet is the first in the online media group to report on July 23, and Post expects results to set a positive backdrop for the group. The analyst slightly raised his Search estimates to 12% year-on-year (versus 11% prior) and now expects second-quarter revenue and EPS of $70.9 billion and $1.91 vs Street at $70.6 billion and $1.84. Also Read: Google's Potential $23B Wiz Acquisition Set To Enhance Cloud Security Post noted upside to Street estimates as his checks suggest AI integrations driving higher usage and ad Click-Through Rates (CTRs), Search revenue stability aided by improving macro and AI-driven ad spend, and YouTube strength from ramping Shorts monetization and less-than-expected headwinds from Prime Video. Post expects flat Y/Y headcount growth (up 1,500 Q/Q) with ongoing restructuring aiding costs. The analyst expects $22.7 billion in operating expenditures and core margins to increase 183bps Y/Y to 37.2%. Post also expects higher other income to help drive EPS upside (NASDAQ up 8% in the second quarter). According to Post, second-quarter positives include Search upside, positive commentary on AI overviews driving higher usage & CTRs, Shorts driving higher traffic & revenue upside, and Cloud strength as IT dollars shift toward AI. Post remains optimistic about growing AI integrations across Google's ecosystem and noted that a broader rollout of AI overviews will help drive higher activity in the core Search business. AI use poses a long-term competitive risk, but in the near term, he noted revenue upside from AI-driven monetization improvements will be a critical second-quarter takeaway. Moreover, focusing on expense management, Post noted that Y/Y margin growth in 2024 will be a bright spot and potential EPS upside driver. Given the market multiple expansion (lower rates), the analyst raised his price target. Price Action: GOOGL shares are trading lower by 2.02% at $180.25 at last check Wednesday. Now Read: Fed Rate Cut Expectations Drop Mortgage Rates To 4-Month Lows: Surge In New Applications, Refinance Demand Market News and Data brought to you by Benzinga APIs

Alphabet stock price target, estimates raised at BMO Capital Markets By Investing.com

BMO Capital Markets analysts raised their price target on Alphabet (NASDAQ:GOOGL) stock from $215 to $222 to reflect their growing optimism for the tech giant's Search and YouTube businesses "given effective AI capabilities." Over the past year, Search share has increased by 130 basis points in the U.S. and 310 basis points globally, with analysts attributing these trends to the rise in repeat query behavior. The proliferation and adoption of chatbots embedded in most apps have led to users returning more frequently. "As such, we are raising our 2Q24 Search estimate to +13.5% year-over-year from 13%, given continued strength across verticals and better-than-expected channel checks," analysts said in a note. For YouTube, the analysts forecast a 20-40 basis points increase in their 2024 Net Revenue estimate, assuming that TikTok ad spend is reduced by 15-30%. A 50% reduction in TikTok ad spend would provide a 60 basis points boost to YouTube revenue, while a complete 100% reduction would lead to a 90 basis points increase relative to the current forecast. Furthermore, YouTube is benefiting from Google's AI tools, particularly features like direct video upload from Studio mobile, the expansion of YouTube Create from 8 to 21 countries, auto-conversion from long-form to short-form content, and new ad tools for creators to monetize through AI capabilities. "The output is growing time spent and continued share gains for U.S. CTV." BMO analysts also predict a significant boost for Google Cloud driven by the rise in dual-cloud adoption among enterprises. They model a 28% growth for Google Cloud, with potential upside in the second half of 2024 "given growth in gen AI workloads and easier comps relative to 1H." The investment bank has modestly increased their estimates for Google's 2024 and 2025 Search revenue to $196 billion and $217 billion, respectively, up from $195 billion and $216 billion. Further, they now expect YouTube revenue to reach $37 billion in 2024 and $43 billion in 2025, compared to their previous estimates of $36.5 billion and $42 billion.