Technology giant Alphabet Inc GOOGGOOGL reported first quarter financial results Tuesday after market close. Here’s a look at what analysts are saying about the company’s financials, artificial intelligence, cloud ambitions and more.
The Alphabet Analysts: Morgan Stanley analyst Brian Nowak has an Overweight rating and raises the price target from $135 to $140.
William Blair analyst Ralph Schackart has an Outperform rating and no price target.
Rosenblatt analyst Barton Crockett has a Buy rating and raises the price target from $128 to $132.
Needham analyst Laura Martin has a Buy rating and a price target of $115.
Bernstein analyst Mark Shmulik has an Outperform rating and a price target of $125.
KeyBanc analyst Justin Patterson has an Overweight rating and raises the price target from $117 to $122.
Related Link: Trading Strategies For Alphabet (Google) Affer Q1 Earnings
The Analyst Takeaways: Nowak highlights the artificial intelligence efforts being made by Alphabet and the growth it could bring to the company.
“GOOGL remains an underappreciated AI leader that will usher in a new era of AI experiences for users, creators, and business partners in our view,” Nowak said.
The analyst also said Alphabet is showing expense discipline, which could help drive the share price higher.
Nowak said Alphabet could provide more details on its AI initiatives at the Google IO and Google Marketing Live events held on May 10 and May 23 respectively.
Schackart said Alphabet remains a leader in the advertising market, with results showing outperformance for customers.
“Advertisers that use Performance Max are, on average, achieving over 18% more conversions at a similar CPA. This metric has increased five points over the last 14 months due partly to advances in the AI underlying bidding and other initiatives,” Schackart said.
The analyst also said there were signs of stabilization for the YouTube segment.
AI is also seen driving the growth of the Cloud segment, with generative AI creating an opportunity for customers.
“A number of organizations are using Alphabet’s generative AI large language models across the Google Cloud platform, Google Workspace, and the company’s cybersecurity offerings.”
Crockett said Alphabet “fared better than feared” in the first quarter, but questions remain in a battle to top the artificial intelligence market.
“There’s no answer yet to the David (Microsoft) vs. Goliath (Google) newly drawn AI search battle, except that the fight is on,” Crockett said of Alphabet and Microsoft Corporation MSFT.
The analyst sees Alphabet showing gains in the search market from rivals and points to AI being its number one growth opportunity, instead of a threat.
“We think Google is the Union Army of AI, and will marshal enough resources over time to have success. We think it will be hard for device makers like Samsung to abandon Google as their preferred search partner in favor of Bing.”
Martin said Alphabet could be losing clients and is seeing weaker advertising demand from customers.
The analyst liked hearing of a $70 billion share buyback and strong operating income in the first quarter. The momentum of YouTube Shorts was also a positive for the analyst.
“Last quarter, GOOGL promised that Cloud profitability would be a key focus. Aided by an accounting change, Google Cloud reported revenues were $7.5B, up 28% … and Cloud reported an operating profit of $191 million, representing a margin of 2.6%, its first positive profit margin,” Martin said.
Shmalik called Alphabet's first quarter a “solid print.”
“AI’s potential terminal risk to Google has certainly dominated the conversations. While yesterday’s print won’t make that narrative go away, it may quiet the doomsayers for a while,” Shmalik said.
The analyst sees the potential expensive race for AI dominance coming, which could lead to higher spending later in the fiscal year. Adding that, “Google’s upside requires trust, patience, and a narrative.”
Patterson called the results from Alphabet “solid.”
“Search reaccelerated to +2% growth, Cloud was better than feared, and the combination of revenue upside and flattish headcount drove an operating income beat,” Patterson said.
The concerns for the analyst are competitiveness for Google’s search in the artificial intelligence sector and partnership deals that could take months to get more color on.
“We advise investors to remain patient.”
GOOG Price Action: Alphabet shares were flat at $104.60 at the time of publication on Wednesday.
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