Alphabet shares rose in early trading Wednesday but remain below their early July high, following a spectacular string of third-quarter earnings that has triggered a wave of price target changes by majors. Wall Street analysts.
Google main alphabet (GOOGLE) which is spending billions on ai infrastructure and development as it rolls out its Gemini technology across its product range, justified that spending with better-than-expected third-quarter earnings and impressive gains in its cloud division.
Google's cloud revenue rose 35% from last year to about $11.35 billion, the company said, helped in part by continued momentum in ai spending by enterprise customers.
Search and YouTube ad revenues also impressed, rising 12.2% to $49.4 billion and $8.9 billion respectively, suggesting the global ad sales market remains strong enough to support more operations. the group as it continues to increase capital spending on ai over the next year.
“Our reported CapEx in the third quarter was $13 billion, reflecting investment in our technical infrastructure, with the largest component being investment in servers, followed by data centers and networking equipment,” the new boss said of finance Anat Ashkenazi.
More spending to come
“Looking ahead, we expect quarterly capital spending in the fourth quarter to be at similar levels to the third quarter, taking into account that the timing of cash payments may cause variability in quarterly reported capital spending,” he added. . “Our expansion of data center capacity is expected to bring economic benefits to the countries and communities in which we are investing.”
However, huge cloud profits mitigated some of the impact of the capital expenditure, suggesting that investors are happy to give Google time to continue developing and implementing its ai strategies.
Improved profit margins for the group, which expanded by 6 percentage points to 17%, also indicated that Alphabet's cost-cutting and efficiency campaigns are beginning to show material benefits.
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“We came off Alphabet's earnings incrementally positive on the stock,” said Citigroup analyst Ronald Josey, who raised his price target on Google shares four dollars higher to $216 a share.
“Google Search and YouTube revenue growth highlights advertisers' continued adoption of their monetization tools as query growth evolves with ai overviews and GenAI search tools more wide,” he added. “While Google Cloud's acceleration in revenue growth underscores strengthening demand for Google's enterprise ai tools and increased demand for the cloud overall, the net result is widening margins, a trend which we believe can continue.
Lower consultation costs
Wedbush analyst Dan Ives was also impressed by Google's efficiency, some of which can be attributed to advances in ai, which he noted has reduced its “cost per query” by about 90% in the last 18 months.
“Management is seeing healthy consumer adoption of ai search capabilities and a growing number of enterprise-level use cases,” said Ives, who raised his Alphabet price target by $5 to $210 a share after of last night's earnings.
“New ai features in Search are driving better engagement and higher levels of user satisfaction,” he added. “Google recently introduced ads in ai Overviews for mobile users in the US and there is potential for incremental monetization as ai Overviews deepens engagement and drives more complex queries.”
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Meanwhile, DA Davidson analyst Gil Luria raised his price target by $20 to $170 per share, noting that “management comments suggest that Google's latest ai features and products in Search, Ads, GCP, Android, and more are resonating with users and driving greater growth opportunities as these use cases mature.”
Alphabet's 2 billion monthly active users, spread across seven product groups, are starting to see a boost from the Gemini launch, leading some investors to worry about an erosion in search revenue. Competition from ai-powered chatbots like ChatGPT and the launch of Apple (AAPL) Apple Intelligence could also disrupt a major revenue campaign for the group.
The search continues to impress
JMP Securities analyst Andrew Boone, however, said Google's third-quarter earnings should ease some of those concerns heading into the final months of the year and beyond.
“While we are concerned about the spread of search as Google's distribution advantage is eroded by the growing number of access points for search, including social media, chatbots and retail media, we believe the growth Overall query growth has also accelerated, driven by the improved ability of search technology to understand complex questions,” he said.
“With YouTube well positioned to capture the transition of linear TV dollars to CTV and cloud strength highlighted by this quarter's revenue acceleration, we continue to view Google as a net beneficiary of ai,” Boone added. , who raised his stock price target from $20 to $220 per share.
KeyBanc Capital Markets analyst Justin Patterson was also impressed with Google's search advancements, noting that while regulatory risks remain in the space, “Alphabet continues to demonstrate strong search and cloud growth and efficiencies.” of expenses”.
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“Even with potential headwinds, we still believe low-to-mid (low double-digit percentage) revenue growth and earnings per share (EPS) growth are achievable,” said Patterson, who raised his target price of Alphabet shares by $15 to $215 per share.
“We recognize that the near term may still be volatile amid the headlines, but we believe patient shareholders will be rewarded,” he added.
Alphabet shares rose 6.8% in premarket trading to indicate an opening price of $182.73 each, a move that would boost the stock's six-month gain to around $11.
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