2 weeks Ago
Eyes are on megacap tech earnings this week, and it is a big one for Google parent Alphabet as the tech behemoth faces several questions around its artificial intelligence spending spree and scrutinized dominance in online search. Alphabet is set to post its third-quarter financial report after the closing bell on Tuesday. Several analysts maintained their buy ratings ahead of the results and expect AI-driven gains to appear in its search and YouTube segments.
Still, the consensus revenue estimate implies Alphabet could post its slowest year-over-year growth since the third quarter of 2023 . Analysts polled by LSEG expect Alphabet to earn $1.85 per share on $86.
3 billion in revenue, implying year-over-year earnings and revenue growth of 19.1% and 12.5%, respectively.
Last quarter, the company's results topped estimates , but shares fell short due to weak YouTube advertising revenue. There is still ample, long-term bullish sentiment behind Alphabet despite fears of increasing regulatory issues and stiffer competition in the digital ad market. Analysts polled by FactSet have a consensus overweight rating and $202.
50 target price, suggesting about 21.5% potential upside from Monday's close. Citi Research also added Alphabet to its U.
S. Large Cap Recommended List on Oct. 16.
In trading Tuesday, the stock was up more than 1%. Shares are up 3% over the past month and have gained roughly 21% year to date. GOOGL YTD mountain Google performance this year.
But Jefferies analyst Brent Thill told CNBC on Friday that Google is the most "controversial" name among its megacap tech peers. He said he is looking for clues to see how Alphabet will monetize artificial intelligence, particularly as the company has uniquely refrained from providing any outlook or milestone for the technology. Thill also wants to see how its YouTube and core search businesses are performing and if new AI assistants are affecting users' ability to go to Google.
"Overall, we think a lot of the negativity is priced in and we would agree, it definitely has the lowest expectations going in," Thill said on CNBC's "Fast Money." "I think as long as it's not terrible and core search is okay and ad budget looks good, the stock should be okay from here." Goldman Sachs analyst Eric Sheridan is in the camp that thinks Alphabet's current valuation is already pricing in a significant degree of investor negativity, largely tied to the antitrust case and expectations of a rising AI capex cycle.
While he remains constructive on the stock, he lowered its price target to $208 per share from $217 in an Oct. 13 note. That still implies the stock can gain more than 30% from Monday's close.
Sheridan sees a solid advertising environment and continued strength in short-form video consumption. While still slowing, this should act as a tailwind over the next 12 to 18 months, he said. Sheridan is also fairly bullish on Google's AI efforts and believes the company has had a "balanced approach" in funding its AI investments.
"We continue to believe that the ability to deploy AI solutions across an existing array of desktop/mobile computing applications remains a key differentiator at scale in terms of product distribution (across not only Alphabet but a host of our coverage) that remains underappreciated by investors," Sheridan said. The setup heading into earnings remains "undemanding," Deutsche Bank analyst Benjamin Black wrote in an Oct. 17 note to clients.
He kept his buy rating and $195 price target on the stock. Like Sheridan, Black expects Alphabet's AI enhancements to support search and YouTube growth, as AI drives efficiency for advertisers. "While advertisers may express some concerns around consumer sentiment, GOOG Search remains a 'utility-like' component of advertiser budgets," he said.
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