Google Parent Alphabet Reported Strong Revenue Growth and AI Breakthroughs, But Capex Raises Questions: Analysts React

Google parent Alphabet Inc GOOGL shares are trading lower on Wednesday despite fourth-quarter financial results beating expectations on Tuesday.

The fourth-quarter revenue increased 13% year-over-year to $86.31 billion, beating the consensus estimate of $85.33 billion—the EPS of $1.64 beat analyst estimates of $1.59.

KeyBanc analyst Justin Patterson reiterated an Overweight with a price target of $165 as the fourth-quarter revenue and EPS beat his expectations.

The quarterly results differed from the analysts’ and buy-side expectations, with Search/YouTube slightly softer and Cloud much stronger across growth and operating margin. 

Search and YouTube were slightly below his expectations (in line with Street), while Cloud exceeded his and Street’s estimates. 

The analyst hailed the impressive Cloud segment growth and generative AI breakthrough.

Capex was a big surprise, and Patterson noted that investors will now debate the size and magnitude of this investment cycle. 

While he acknowledged this could temper enthusiasm in the near-near term shadow of Meta Platforms Inc’s META metaverse investments looms large), AI is demonstrating some early returns, and there still appears to be a runway toward ~$7 and $8 in 2024 and 2025 EPS.

Patterson projects first-quarter revenue and EPS of $79.48 billion (prior $78.65 billion) and $1.47 (prior $1.56).

Needham analyst Laura Martin reiterated a Buy with a price target of $160 following mixed quarterly results. 

The revenue beat her estimates, unlike the EPS that lagged her projections. Martin also flagged the materially higher capex of $11 billion.

GOOGL is Martin’s top large-cap stock pick for 2024, owing to a more robust macro backdrop, record political ad spending, data advantages, and generative AI.

Martin projects first-quarter revenue and EPS of $78.01 billion and $1.46.

William Blair analyst Ralph Schackart maintained an Outperform rating.

The analyst flagged disappointing advertising growth and noticeably more significant capex while the Cloud segment gained traction.

The analyst expects the noticeably more significant 2024 capex to disappoint investors.

Google’s continued product innovations and successful leverage of AI technologies to improve its offering across all key areas led to the re-rating.

Schackart projects first-quarter revenue and EPS of $79.26 billion and $1.39.

Price Action: GOOGL shares traded lower by 6.20% at $143.56 on the last check Wednesday.

Alphabet’s 2024 Prediction

Equity research can be a valuable source of information for learning about a company's fundamentals. Analysts create financial models based on the fundamentals and expected future earnings of a company to arrive at a price target and recommendation for the stock.

Shares of Alphabet have an average 1-year price target of $163.83, representing an expected upside of 15.47%.

Because of differences in assumptions, analysts can arrive at very different price targets and recommendations. No analysts have bearish recommendations on Alphabet, while 17 analysts have bullish ratings. The street high price target from Wolfe Research is $180.0, while the street low from Wells Fargo is $129.0.

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