Alphabet Q3 Earnings Preview: Is The Company On The Brink Of A '1995 Moment' In AI Revolution?

Alphabet Inc. GOOG GOOGL, the third-largest corporation in the U.S. by market capitalization, is poised to unveil its much-anticipated third-quarter earnings report.

Analysts’ consensus estimates suggest robust performance, with anticipated earnings per share (EPS) of $1.46 and revenue projected at $76.02 billion.

In terms of earnings projections, this would mark the highest performance since the fourth quarter of 2021 when Alphabet, the parent company of Google, reported EPS was $1.53, and would also reflect a remarkable 38% increase compared to the same quarter in 2022.

As for revenue expectations, they closely mirror the all-time highs of $76.05 billion achieved in the fourth quarter of 2022. Additionally, it would imply a substantial 10% rise compared to revenues reported in the same quarter of 2022.

The year 2022 was a challenging one for Alphabet, as it consistently fell short of Wall Street’s earnings and revenue estimates in each quarter of the year. However, 2023 has been a different story so far, with Alphabet consistently outperforming market expectations in both the first and second quarters.

Following the second quarter earnings announcement, Alphabet’s stock surged by nearly 6%, while it remained relatively stable after the first quarter results. Shares of Alphabet have risen 52% year to date, and currently trade at a 11% distance from the all-time highs achieved in February 2022.

The question on everyone’s mind is whether Alphabet can surpass these elevated Street’s estimates once more into the third quarter.

Goldman Sachs’ Bullish Outlook

Goldman Sachs was particularly optimistic about Alphabet’s prospects, citing the growing revenues from Search and YouTube Ads. Their forecasts indicated a substantial upside compared to the Street’s consensus for Search and YouTube Ads revenue estimates for the latter half of 2023 and 2024.

This included an impressive 10% year-on-year growth projection for YouTube Ads in the third quarter and a robust 14% year-on-year growth in the fourth quarter of 2023.

Additionally, Goldman Sachs analysts raised their capital expenditure (capex) projections for AI-related initiatives, estimating an investment of approximately $35 billion in 2024.

As a result of these developments, Goldman Sachs recently increased its price target for Alphabet from $152 to $154.

The AI Revolution According to Wedbush

Wedbush views the current wave of AI innovation as a momentous event, comparing it to the technological revolution of 1995.

Analysts believe that AI’s impact on the consumer internet will be profound, with cloud service divisions such as Amazon.com, Inc. AMZN’s AWS and Alphabet’s GCP leading the way.

Wedbush continues to favor Amazon, Alphabet and Meta Platforms Inc. META as top tech picks in the current market environment.

Wedbush assigned an Outperform rating and set a $160 price target on Alphabet shares, implying a 16% upside from current levels.

Read now: Amazon’s Profitability Will Hinge On Its Cloud Business, AWS – One Analyst Gives Us An Optimistic View

Evercore’s Constructive Outlook

Evercore remained positive on Google, citing its reasonable valuation, accelerating growth prospects and prominent role as a major player in AI.

The third-quarter revenue and gross margin estimates were in line with the consensus on Wall Street.

Evercore believed the bullish case for Alphabet will be stronger in 2024, as both its Ads and Cloud segments are expected to rebound with robust growth, driven in part by undervalued AI deployments.

Evercore maintained an Outperform rating and a $160 price objective on Alphabet.

Read Now: Amazon, Alphabet, Meta, Intel Q3 Earnings This Week: Will Mega-Caps Shatter Forecasts And Revive Market?

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