BMO Capital Markets has adjusted its outlook on Alphabet Inc. (NASDAQ: NASDAQ:GOOGL), the parent company of Google, by reducing its price target from $222.00 to $215.00. Despite this change, the firm maintained its Outperform rating on the stock.
The decision to revise the price target follows the recent introduction of Alphabet's AI Overview mobile ads, which are set to have a global launch by 2025.
BMO Capital's analyst pointed out that current market projections for search growth, which stand at 9.5% for 2025 and 9% for 2026, might underestimate the increase in query usage due to these developments.
Alphabet's advancements in AI workload and its comprehensive AI capabilities suggest a potential for greater cloud revenue. However, the firm has slightly reduced its expectations for YouTube based on modest channel checks and a shift in advertising focus towards performance metrics.
The analyst emphasized Alphabet's improved cost efficiency, noting that the cost to serve AI has dropped by 97% since mid-2023. This significant reduction in costs is seen as a positive indicator for Alphabet's potential to increase its GAAP earnings per share (EPS).
In other recent news, Alphabet Inc. has been the subject of several significant developments. Bernstein has reiterated a Market Perform rating on Alphabet shares, maintaining a price target of $180, while Cantor Fitzgerald reaffirmed a Neutral rating with a steady price target of $190. Both firms anticipate a strong third-quarter performance for Alphabet, expecting revenues to meet and earnings per share to exceed consensus estimates.
However, Alphabet continues to face legal challenges from the Department of Justice (DOJ), which is considering significant actions against Google, including the dissolution of exclusive contracts deemed anti-competitive.
Google, responding to these antitrust concerns, plans to appeal the decision, arguing that its search engine's dominance is due to the quality of its service. In other corporate news, Alphabet's Google has expanded its strategic partnership with Vodafone (NASDAQ:VOD), introducing Google's latest generative AI-powered devices to Vodafone's customer base throughout Europe and Africa. This ten-year agreement is valued at over a billion dollars.
InvestingPro Insights
Alphabet's financial metrics and market position align well with BMO Capital Markets' optimistic outlook. According to InvestingPro data, Alphabet boasts a robust revenue of $328.28 billion over the last twelve months, with a impressive revenue growth of 13.38%. This growth trajectory supports the analyst's view on the potential underestimation of search growth projections.
InvestingPro Tips highlight Alphabet's strong financial health, noting that the company "holds more cash than debt on its balance sheet" and "cash flows can sufficiently cover interest payments." These factors contribute to Alphabet's ability to invest in AI advancements and cloud services, as discussed in the article.
The company's profitability is also noteworthy, with an operating income margin of 31.03% over the last twelve months. This aligns with the analyst's emphasis on Alphabet's improved cost efficiency, particularly in AI services.
For investors seeking a deeper understanding of Alphabet's potential, InvestingPro offers 11 additional tips, providing a comprehensive analysis of the company's financial health and market position.
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