Analysts at Jefferies see one of the "Magnificent Seven" stocks grinding higher following its earnings release next week despite rising 58% in 2023.
The firm expects Alphabet Inc. (NASDAQ:GOOGL) to slightly beat consensus expectations. They see the tech giant reporting a strong year-end finish as their checks have been "generally upbeat" with some ad budget flush, resilient consumer spend, and improving enterprise sentiment.
"We expect slight upside to JEFe and Street ests, though upside to higher investor expectations may be muted," said analysts.
Meanwhile, the firm's checks also show that the Google Cloud backlog is improving, although they acknowledge it is early on AI revenue.
"Our checks indicate the peak of cloud cost optimization has passed, and buyer sentiment has shifted to resumed Cloud transformation, including data modernization in preparation for AI deployments," analysts added. "However, the pace remains measured and gradual, with revenue inflection unlikely until 2H24."
Nevertheless, Jefferies maintained a Buy rating on GOOGL, lifting the price target for the stock to $170 from $165 per share in its note, stating that the valuation still reasonable.
"GOOGL stock returned a healthy 58% in '23, though it trailed FAANG 89%, AMZN 81%, and META 194%," said the analysts. "Despite the gains, valuation remains reasonable at 12.1x CY24 EV/EBITDA, or roughly on par with 12.1x 10-yr avg but below S&P 500's 13.6x. We believe stock can continue to grind higher in '24 based on generally improving demand for ad spend and Cloud."