Google main alphabet (GOOGLE) – Get a free report Shares rose Tuesday ahead of a fourth-quarter earnings report, scheduled for after the close of trading, that is likely to highlight the tech giant's continued push to infuse artificial intelligence technologies into its digital advertising business.
Google, which has maintained a clear advantage over Microsoft (MSFT) – Get a free reportin the global search market over the past decade, it lost some of that position when its rival added ai-powered ChatGPT to its Bing search engine in February last year.
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Still, Google's eponymous search engine remains the undisputed market leader, aside from Apple's default search tool. (AAPL) – Get a free report iPhones: with a 91.6% share of the global search market, according to the data analysis company StatCounter.
Meanwhile, Bing increased its overall market share by just one percentage point, to 3.4%, a gain that nonetheless likely added about $2 billion in additional revenue for the world's most valuable technology company. .
This is likely to provide Google with a solid cushion against declining revenue from its cloud division, which faces stiff competition from companies like Amazon. (AMZN) – Get a free report Microsoft's AWS and Azure, both in its fourth-quarter earnings report and its 2024 revenue outlook.
But Google, sensing the shift in online search that will soon come from generative ai tools, is preparing a major restructuring of the world's largest advertising platform and its 30,000-person team by increasing its reliance on ads generated by ai.
The sales, which are largely automated, generate tens of billions in sales at a much wider margin than traditional advertising-related revenue overseen by human employees.
JMP Securities analyst Andrew Boone notes that “with Meta recently reporting that ai helped return on ad spend improve by 32%, Meta's Advantage+ shopping campaigns achieved a run rate of over $10K.” million last quarter and Google recently extended its ai-powered offerings… we “I think ai is improving results for advertisers.”
“This is solidifying further investment in Meta and Google as we expect Walled Gardens to take up a share of advertising budgets in 4Q23,” added Boone, who has an Overweight rating on the market with an upgraded $150 price target for Google shares.
Google's ad spend outlook for 2024 is strong
Wall Street estimates suggest that Google's fourth-quarter ad sales rose nearly 12% from a year earlier, to just over $66 billion, while the group's total revenue rose about 8.2%. , up to 85.3 billion dollars.
Google's overall bottom line likely rose 51.5% from a year ago to $1.59 per share, according to Wall Street forecasts.
Looking ahead to 2024, analysts believe the impending presidential election, along with the Summer Olympics in Paris and the UEFA Euro 2024 soccer tournament, will boost global advertising sales.
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KeyBanc Capital Markets analyst Justin Patterson, who yesterday raised his price target on Google by $12 to $165 per share, believes stronger advertising revenue will offset a slowdown in the cloud division. That would put Alphabet on “a clear path to earnings of $7/8 per share in 2024 and 2025.”
“We believe retail and travel benefited search spending in Q4, while YouTube benefited from a stronger brand market,” Patterson added. “Cloud appears to have had cost optimizations later than its peers and is now seeing a Workspaces price increase in the first quarter.”
CFRA analyst Angelo Zino, who has a $157 price target on Google, is a bit more cautious, noting that while “positive digital search advertising trends and increased monetization initiatives on YouTube are supporting growth rates of the segment…concerns about regulatory risks and competitive threats. , and the Justice Department case remain significant headwind risks.”
Alphabet faces two key Justice Department lawsuits this year
Google parent company Alphabet faces the likelihood of two separate lawsuits this year linked to lawsuits from the US Department of Justice that accuse it of abusing its monopoly position in online advertising technology and its position dominant in searches.
Still, Zino says that among mega-cap tech names, Google “may be the most underrated story given its multiple current forecasts.”
Alphabet shares trade at a forward PE multiple of around 29.5 times, nearly half the average PE multiples of its Magnificent 7 peers.
The group also has the lowest price-to-earnings-growth ratio of the Mag 7 group, suggesting investors could pay less for near-term earnings growth than its mega-cap rivals.
Alphabet shares rose 0.12% in pre-market trading to indicate an opening price of $155.03 each. That move would extend the stock's six-month gain to about 16.5% and value the Mountain View, California, tech giant at just under $2 trillion.
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