Investing.com -- BMO Capital Markets increased its price target for Google owner Alphabet (NASDAQ:GOOGL) shares, while maintaining an Outperform rating.
The upward revision follows positive channel checks that suggest improvements across Google's Search, Google Cloud Platform (GCP), and YouTube segments.
BMO's analysis suggests that Search revenue for 2025 is looking less risky, as Product Max (PMax) is enhancing Return on Ad Spend (ROAS), which is expected to drive higher spending into the fourth quarter of 2024. The firm's estimates for Search revenue growth in 2024-2026 have been increased to 13%, 14%, and 12%, respectively, above the consensus growth rate.
BMO also notes that GCP is executing well with continued tailwinds into 2025. The firm has raised its revenue growth estimates for GCP following channel checks that revealed Gemini's traction among new and existing workloads, due to improved performance and lower costs.
“GCP introduced an AI Agent ecosystem in 4Q24, which helps developers build effective apps on the Vertex (NASDAQ:VRTX) AI platform. The output is continued client growth and more significant spending among existing clients,” BMO analyst Brian J. Pitz said in a note.
In the digital advertising space, YouTube's direct response (DR) strength, especially with QR codes, has been well-received by advertisers. BMO has lifted its growth forecasts for YouTube's revenue in 2025 and 2026 to 13.5% and 13%, respectively.
Pitz believes that Creator AI tools and earnings opportunities will position YouTube favorably for supply growth and user engagement.
While monitoring the situation, Pitz also commented on the ongoing Google Department of Justice (DoJ) trials, noting that the final arguments took place on November 25. The analyst suggests that a potential forced divestiture of Android could have a more significant impact than the removal of Search exclusivity.
The revised model by BMO includes higher Search and YouTube revenue estimates for 2025 by 2.5% and 3%, respectively, due to improved ad spend.
Cloud growth estimates for 2025 and 2026 have also been increased by 5% each, following the Gemini improvements.
BMO's GAAP EPS estimates for 2025 and 2026 are now $9.40 and $10.90, compared to the previous $9.34 and $10.82, and above the consensus of $9.00 and $10.30.
Capital expenditures for the same years are projected to be $60 billion and $66 billion, respectively.