On Wednesday, Citi maintained its Buy rating on Alphabet Inc. (NASDAQ:GOOGL) stock and raised its price target to $216 from $212. The adjustment follows Alphabet's third-quarter earnings report, which Citi found encouraging due to several positive developments within the company's various segments.
Alphabet's third-quarter performance showed a 12% year-over-year increase in Google Search & YouTube revenue. This growth is attributed to the continued adoption of Alphabet's monetization tools by advertisers and the evolution of query growth through AI Overviews and GenAI search tools. These advancements have played a significant role in the company's revenue dynamics.
Additionally, Google Cloud's revenue saw an impressive 35% year-over-year surge, indicating a strong demand for Google's enterprise AI tools and a broader increase in cloud demand. This significant growth in the cloud segment has contributed to expanding profit margins for Alphabet.
Citi's analysis also highlighted the potential for further margin expansion, considering the integration of Gemini across all seven of Alphabet's products with over 2 billion monthly active users (MAU), including the recent addition of Google Maps. The firm anticipates that Alphabet's ongoing AI upgrades across its portfolio are still in the early stages and expects to see improved integrations and benefits in the future.
Despite the positive outlook, Citi cautioned about the regulatory challenges and rising competition in the GenAI space. Nonetheless, the strong third-quarter results have bolstered the firm's confidence in Alphabet's trajectory.
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