What Are Facebook And Google Building? A Look At The Tech Giants' R&D Spending

The forward-thinking, explorative segments of Facebook, Inc. FB and Alphabet Inc GOOGL GOOG reported a combined $24 billion in annual research and development.

The investments signal heightening competition for users’ time, data and money.

The Rating

Morgan Stanley analyst Brian Nowak maintained Overweight ratings on the stocks, with a $1,200 price target for Alphabet and a $210 price target for Facebook.

The Thesis

As demonstrated at the Facebook F8 and Google I/O conferences this month, Facebook and Alphabet are investing in platform updates and expansions to improve user engagement and retention and to monetize small-to-medium business client interactions.

Morgan Stanley projects that improved SMB offerings and capabilities from Facebook and Google will lead to higher SMB spending, Nowak said in a note: "SMB spend can scale quickly too."

Facebook is launching Oculus Go VR and upgrading its platforms with dating features, filters and group video calls.

At the same time, Google is expanding Assistant’s capacities, compatibilities and media; rolling out a personalized news app; better personalizing Maps and local search features; adding new search products to Google Lens; advancing Waymo’s autonomous services; and building diagnostic and predictive health care tools through Verily.

“GOOGL assistant is making impressive strides, and GOOGL's underappreciated optionality (maps/hardware/Waymo/Verily) was reinforced,” the analyst said. 

Morgan Stanley estimates Google could add about $3 billion in annual revenue if it monetizes justs its billion-user Maps product.

Price Action

Facebook was up 0.49 percent at the time of publication, while Alphabet shares were rising 1.43 percent. 

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