Alphabet (NASDAQ: GOOG) has seen rising profit margins and improved revenue growth driven by online advertising and cloud computing. The company’s leadership has focused more on the bottom line, making strategic cuts while increasing sales.
In the first quarter, revenue grew by 15% year-over-year, and net income rose by 57% YoY. This strong performance has attracted investors, leading to a 34% GOOG stock gain year to date and a 231% increase over the past five years.
Although Alphabet had a slow start due to issues with Gemini, those problems are now a thing of the past. Advertising revenue continues to climb, and Google Cloud is expanding even faster, growing by 28.4% YoY and contributing $9.6 billion to Alphabet’s $80.5 billion in Q1 2024 revenue.
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Rising revenue and expanding user base excite Wall Street analysts
Thanks to the many users spread out across various sectors of Google’s internet dominions, analysts believe that Alphabet’s stock is poised for further growth.
On July 3, Needham, a prominent investment firm, maintained its “buy” rating on Alphabet stock with a price target of $210. The firm evaluated YouTube’s standalone value, estimating it to be between $455 billion and $634 billion, which accounts for 20% to 30% of Alphabet’s total enterprise value.
The valuation is based on YouTube’s revenue, user base, and engagement level, with potential values of $530 billion, $455 billion, and $624 billion, respectively.
On June 27, Sachin Mittal from DBS maintained a “buy” rating on Alphabet stock with a price target of $218.
Alphabet’s diversification across various technological products, including its dominant search engine and services like Maps and YouTube, positions it for continued revenue growth.
Additionally, Alphabet’s Google Services segment has a substantial 40% operating margin, and YouTube’s growing subscription base strengthens the company’s financial robustness.
Jefferies reiterated its “buy” recommendation for Alphabet and raised its price target from $200 to $215 on June 26 after surveying over 1,500 consumers and office workers about artificial intelligence (AI).
The survey revealed that Alphabet is the leading company in AI awareness among consumers, with many preferring the group’s AI-powered answers over traditional search results.
Some analysts are worried about Alphabet’s dominance
Loop Capital analyst Rob Sanderson is increasingly optimistic about Meta Platforms (NASDAQ: META) while remaining uncertain about Alphabet’s future.
He notes that generative artificial intelligence has significant potential for the tech sector, sparking an “arms race” among companies. However, the paths to returns on investment (ROI), revenue models, and timeframes are still uncertain.
Sanderson believes Meta’s strategy to advance AI tools for creators and businesses is well-defined and logical. Meta also appears to be investing significantly more in tech infrastructure than Google, possibly 50% to 60% more over the last two years.
As a result, Loop Capital sees Meta gaining a valuation advantage over Alphabet in the coming quarters and years.
Loop Capital reiterates a “hold” rating on Alphabet with a $170 price target.
Over the past year and a half, analysts have debated Alphabet’s future in a world increasingly dominated by artificial intelligence.
Despite concerns that Google’s core search business might face revenue risks as users turn to AI assistants instead of traditional search engines, Alphabet’s stock has more than doubled since early 2023.
However, Rosenblatt Securities analyst Barton Crockett recently downgraded Alphabet shares from “buy” to “hold,” with a $181 price target citing “multiple areas of transitional risk” and advising investors to pause and observe how the company navigates these changes.
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