On Wednesday, UBS adjusted its price target on Alphabet Inc (NASDAQ:GOOGL) shares, increasing it slightly from $200.00 to $204.00, while maintaining a Neutral rating on the stock. This decision comes in light of Alphabet's anticipated revenue growth driven by artificial intelligence (AI) investments.
The firm highlighted that one of the predominant inquiries from investors has been regarding the return on invested capital (ROIC) from Alphabet's AI-focused capital expenditures.
Based on the first half of 2024's results, Alphabet is on track to boost its Search revenue by an estimated $25 billion this year, marking a significant increase compared to the $12 billion added in 2023 and $13 billion in 2022. Pre-pandemic figures were around $15 billion. These numbers suggest a roughly 17% growth in foreign exchange-neutral terms.
UBS attributes this revenue growth to innovative improvements in monetization within Google's core business, with Performance Max being identified as a key product contributing to this development.
Despite the positive outlook on Search revenue, the full extent of gains from AI advancements in Google Cloud Platform (GCP) and the overall long-term payoff remain uncertain. UBS anticipates that potential revenue benefits from these investments may not materialize until the first half of 2025 or later.
The analyst's commentary reflects a belief that while there has been progress, the debate on ROIC from AI investments is not entirely settled. This is partly due to revised capital expenditure estimates for 2025 and 2026, which are now higher than previously forecasted.
As a result, while there is recognition of Alphabet's innovative steps in monetization, there is also an acknowledgment of the ongoing discussion about the timing and magnitude of investment returns.
In other recent news, Alphabet Inc. has been the subject of various developments. The company's second-quarter earnings report revealed better-than-expected revenue and earnings per share, driven by performance in Search and Google Cloud Platform.
Despite this, RBC Capital has raised its price target for Alphabet from $200.00 to $204.00, maintaining an Outperform rating. The firm anticipates some investor concern over the third-quarter margin outlook due to expected increases in AI-related depreciation.
The same firm also increased its EPS estimates for Alphabet for the year 2026, reflecting Alphabet's potential in AI and improving operational leverage. However, investors' reactions to Alphabet's earnings were mixed, with shares declining despite exceeding revenue expectations.
In other recent developments, Alphabet's cloud business saw a revenue increase of 28.8%, reaching $10.35 billion, surpassing analysts' projections. This growth underscores Alphabet's expanding footprint in the competitive cloud sector.
These are some of the recent developments surrounding Alphabet Inc., as the company maintains a strong position in the digital advertising market and capitalizes on growing demand for cloud infrastructure and services.
InvestingPro Insights
Alphabet Inc (NASDAQ:GOOGL) continues to attract analyst attention with its AI-driven growth prospects. In line with UBS's recent price target adjustment, here are some key insights from InvestingPro that provide a deeper financial context. Alphabet's balance sheet strength is evident as the company holds more cash than debt, positioning it well for ongoing and future investments in AI and other initiatives. Additionally, with a P/E Ratio (Adjusted) of 26.36 as of Q1 2024, Alphabet is trading at a low price-to-earnings ratio relative to its near-term earnings growth, suggesting a potentially attractive valuation for investors.
InvestingPro data also shows a healthy revenue growth of 11.78% over the last twelve months as of Q1 2024, with an even more robust quarterly revenue growth of 15.41% in Q1 2024. This aligns with UBS's anticipation of revenue growth driven by AI investments. Moreover, the company's gross profit margin stands at 57.47%, reinforcing the efficiency of Alphabet's operations.
For those seeking more in-depth analysis, there are additional InvestingPro Tips available that delve into Alphabet's market position, profitability, and financial health. For example, Alphabet is not only a prominent player in the Interactive Media & Services industry but also has cash flows that can sufficiently cover interest payments, and its liquid assets exceed short-term obligations. With these additional 12 InvestingPro Tips, investors can gain a comprehensive understanding of Alphabet's financial landscape. Access these insights and more at Investing.com/pro/GOOGL and use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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