Alphabet Stock Tumbles Despite AI Boost as YouTube Growth Slows and Margin Concerns Arise
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Alphabet falls as margin fears, YouTube slowdown eclipse AI boost
Alphabet's stock dropped over 3% amid concerns about rising AI infrastructure investments squeezing margins and strong competition for YouTube ad dollars. Q2 saw a higher-than-expected $13.2 billion capital expenditure. Despite these setbacks, analysts noted positive signs in AI-driven cloud revenue growth and minimal disruption to Search revenue.
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Alphabet stock tumbles on mixed earnings results, but Goldman sees 25% upside ahead on AI strength | Business Insider India
Alphabet stock slid Wednesday as investors digested second-quarter results that beat earnings estimates but fell short in other key areas. The mixed results sent the stock down 5% in Wednesday afternoon trading, but Goldman Sachs analysts say they remain optimistic about the company's artificial intelligence opportunities. Last quarter, the company saw earnings per share of $1.89 versus estimates of $1.85. Yet, ad revenue from YouTube was weaker than Wall Street expected, at $8.66 billion versus estimates of $8.95 billion. Capital expenditures in the quarter were also higher than expected, at $13.2 billion. Goldman Sachs was upbeat in its analysis, raising Alphabet's price target from $211 to $217 in a note after the company released earnings. That represents a 25% increase from Wednesday afternoon's price of $172.80. Goldman says its optimism comes largely from Alphabet's AI opportunity. "While we cannot refute the continued investor debate around the future of search, we continue to believe that Alphabet is positioned as an AI first company," the analysts noted, adding that the company has existing applications into which it can further integrate its AI tools. Investors on Tuesday's earnings call seemed worried, though, about the return on such heavy investment in AI. Alphabet's executives fielded numerous questions on the monetization of AI initiatives, including its AI-generated search result summaries and AI integration into it cloud business. The executives provided no hard numbers and emphasized that the tech giant's AI ambitions will produce long-term returns. It's "something which I think will end up being a big driver over time," Alphabet CEO Sundar Pichai said regarding AI's integration into its cloud unit. Pichai also said the company has "over 2 million developers playing around with these things." Goldman's analysts aren't phased by the potentially long timeline for gains from AI to materialize, but say they expect investors to continue focusing on the future of search, operating margin outcomes, and long-term investments in data centers and technical infrastructure to fuel AI.
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Alphabet's stock falls after Q3 earnings report, with investors concerned about YouTube's slowdown and margin pressures despite AI advancements. Goldman Sachs remains optimistic, citing potential AI-driven growth.
Alphabet's Q3 Earnings Trigger Stock Decline
Alphabet, the parent company of Google, experienced a significant stock drop following its third-quarter earnings report, despite showing progress in artificial intelligence (AI) initiatives. The company's shares fell by 6.1% in premarket trading on Wednesday, marking the largest intraday decline since March
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.YouTube's Growth Slowdown
One of the primary factors contributing to investor concern was the slowdown in YouTube's advertising revenue growth. The video platform's ad revenue increased by 12.5% year-over-year, falling short of the expected 13.1% growth
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. This underperformance raised questions about the platform's ability to maintain its momentum in a competitive digital advertising landscape.Margin Pressures and Increased Costs
Alphabet's earnings report revealed mounting pressure on profit margins, with a notable increase in costs. The company's operating margin for the quarter came in at 28%, below the anticipated 28.7%
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. This margin compression was attributed to higher expenses related to AI investments and infrastructure spending.AI Advancements Overshadowed
Despite the stock decline, Alphabet showcased significant progress in its AI initiatives. The company highlighted the integration of AI across its product lineup, including improvements to Google Search and the introduction of new AI-powered features
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. However, these advancements were overshadowed by concerns about short-term financial performance.Goldman Sachs Remains Optimistic
Despite the market's negative reaction, Goldman Sachs maintained a positive outlook on Alphabet's future. The investment bank reiterated its "Buy" rating for the stock, projecting a 25% upside potential
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. Goldman Sachs analysts emphasized the company's strong positioning in the AI race and its potential for long-term growth.Related Stories
Mixed Financial Results
Alphabet's Q3 financial results were mixed, with some metrics exceeding expectations while others fell short. The company reported earnings per share of $1.55, surpassing the estimated $1.45. However, Google Cloud revenue of $8.41 billion missed the projected $8.64 billion
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.Future Outlook and AI Investments
Looking ahead, Alphabet remains committed to its AI strategy, viewing it as a key driver of future growth. The company's CEO, Sundar Pichai, emphasized the transformative potential of AI across Alphabet's products and services. As the tech giant continues to invest heavily in AI research and development, investors and analysts will be closely monitoring how these investments translate into tangible financial results and market leadership in the coming quarters.
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