On Tuesday, Wolfe Research initiated coverage of Alphabet Inc. (NASDAQ:GOOGL) stock, the parent company of Google, with an Outperform rating and a price target (PT) of $240.00.
The firm's positive outlook on the stock is grounded in the belief that Alphabet will continue to outpace the digital advertising market due to its significant scale, substantial investments in artificial intelligence (AI), and its leading position in various product categories.
The research firm's valuation is based on a price-to-earnings (P/E) multiple of 25 times the projected earnings for the fiscal year 2025 (FY25E). This valuation is higher than the median multiples of similar companies in the digital advertising space but lower than those of larger mega-cap companies. The firm considers the valuation reasonable, given Alphabet's potential for growth and margin expansion in the digital advertising sector.
Alphabet's stock is currently trading at a P/E multiple of approximately 22 times the estimated earnings for 2025, which is slightly above its five-year historical median of 21.3 times. Additionally, the company's shares are trading at a premium compared to Meta Platforms Inc (NASDAQ:META). (formerly Facebook), which marks a shift from its long-term median, where it typically traded at a discount.
The analyst's commentary emphasizes Alphabet's ability to outgrow the digital advertising market and gain a larger share in cloud computing. Furthermore, the firm anticipates that Alphabet will generate new revenue streams and maintain a competitive edge in the race to develop generative AI technologies.
Wolfe Research's price target of $240.00 reflects confidence in Alphabet's continued success and the company's strategic positioning to capitalize on current and future market opportunities.
In other recent news, Alphabet Inc. is reportedly finalizing negotiations to acquire cybersecurity firm Wiz for an estimated $23 billion, marking the largest acquisition in the company's history.
Wiz, a rapidly expanding software startup, reported generating approximately $350 million in revenue in 2023. Meanwhile, investment firm Needham maintained a Buy rating on Alphabet stock, citing YouTube's significant contribution to Alphabet's overall business value.
In a move towards transparency, Google, a subsidiary of Alphabet, has updated its political content policy to require advertisers to disclose the use of digitally manipulated content in election ads. This policy change comes in response to concerns over the misuse of generative AI in the creation of deepfakes.
Furthermore, Alphabet's stock has been actively traded by various U.S. representatives, including Texas's 25th district representative Roger Williams, who recently purchased Alphabet's stock. These developments provide a snapshot of Alphabet's recent activities, based on information from independent sources and clear evidence.
InvestingPro Insights
Wolfe Research's bullish stance on Alphabet Inc. (NASDAQ:GOOGL) is echoed by several metrics and InvestingPro Tips that highlight the company's financial health and market position. Alphabet's ability to hold more cash than debt on its balance sheet is a testament to its solid financial footing. Additionally, the company is trading at a low P/E ratio relative to near-term earnings growth, with a current P/E ratio of 28.45 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 27.03. This indicates that the stock may be undervalued given its growth potential.
InvestingPro data also shows a robust revenue growth of 11.78% for the last twelve months as of Q1 2024, with a significant quarterly increase of 15.41% in Q1 2024. The company's substantial gross profit margin of 57.47% demonstrates its efficiency in converting sales into profit. Moreover, Alphabet's return on assets of 21.22% signifies effective management in utilizing its assets to generate earnings.
For investors looking for further insights and additional InvestingPro Tips on Alphabet Inc., they can explore more on InvestingPro. There are 15 more tips available, which can provide a deeper understanding of the company's performance and outlook. Readers interested in leveraging these insights can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, enhancing their investment research with valuable data and analysis.
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