Google parent company, Alphabet Inc., has seen a surge in its stock price, reaching an all-time high last week. This upward momentum is expected to continue as the company prepares to release its projected strong quarterly results on Tuesday.
Several factors have contributed to this positive outlook, including a rebound in advertising sales, growing optimism surrounding Alphabet’s plans for generative artificial intelligence, and recent workforce reductions. These developments have left analysts and investors feeling optimistic about the company’s future.
In a note to investors, Jefferies analyst Brent Thill expressed confidence in Google’s potential for further growth, despite already experiencing a 58% increase in 2023. Thill cited accelerating ad revenue, favorable comparisons, strong sales in both search and cloud services, and tailwinds in artificial intelligence as key drivers for Alphabet’s continued success. He raised his price target for Alphabet shares from $165 to $170 while maintaining a buy rating.
This positive sentiment is clearly reflected in Alphabet’s record stock price of $152.19, contributing to its market valuation of $1.911 trillion.
Advertising Remains a Cornerstone for Google
Advertising plays a crucial role in Google’s ongoing success. According to a survey of 54 senior U.S. ad buyers conducted in late 2023, Google Search is expected to remain the dominant platform for digital ad spending. Although it may experience a slight decrease in market share from 23% in 2023 to 22% in 2025, it is still highly favored among ad buyers. The same survey also predicts a slight increase in YouTube’s share from 24% in 2023 to 25% in 2024-25.
These survey results motivated Cowen analyst John Blackledge to raise his price target for Google shares from $155 to $170. He also maintained an outperform rating for the company.
In conclusion, Alphabet’s impressive stock performance and positive outlook can be attributed to various factors, such as a rebound in advertising sales and the company’s advancements in generative artificial intelligence. With strong support from investors and analysts, Google remains well-positioned for continued success in the market.
Advertising Revenue Projections
Mark Mahaney, an analyst at Evercore ISI, has an optimistic outlook on advertising revenue. He predicts that the fourth-quarter revenue will reach $67.4 billion, surpassing street estimates by 2%. Mahaney is particularly excited about the performance of YouTube/YouTube TV, which is benefiting from the recent Hollywood strikes.
However, amidst the positive projections, there looms a dark cloud of antitrust regulation. While the Justice Department awaits a verdict in its lawsuit against Alphabet, the Federal Trade Commission is currently investigating the generative-AI investments and partnerships of several tech giants including Alphabet, Amazon.com Inc., Anthropic, Microsoft Corp., and OpenAI Inc. Notably, Google has already faced legal consequences in an anticompetitive lawsuit brought by Epic Games Inc.
FTC Probe into AI ‘Investments and Partnerships’
Recently, Alphabet, Amazon, and Microsoft found themselves under the scrutiny of the Federal Trade Commission’s investigation into AI investments and partnerships. The outcome of this investigation has the potential to shape the future strategies and risk profiles of these tech giants.
Wells Fargo analysts expressed caution regarding fiscal year 2024. They attribute their concerns to regulatory risks and emerging developments in the field of AI. According to them, the trajectory of Google’s business strategy and future results could be significantly impacted by ongoing regulatory and legal matters, which involve Play Store, Search, and Ad Tech.
It is clear that while the advertising revenue outlook is promising, the regulatory landscape poses significant challenges and uncertainties for Google’s business moving forward.