AI-Driven Growth Set To Strengthen Google's Ad Revenue: Goldman Sachs

Goldman Sachs analyst Eric Sheridan reiterated a Buy rating on Alphabet Inc GOOG GOOGL with a price target of $195.

Sheridan said Google’s Marketing Live keynote outlined Alphabet’s vision for its AI tools and services launch in the context of digital advertising.  

The analyst noted that Google continues to iterate on how AI can increase the performance of ad spend across Search, YouTube, Performance Max, and, increasingly, third-party platforms and inventory.  

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Concerning Search, Google showcased how ads will be increasingly integrated into AI Overviews and provided some initial disclosure around how AI Overviews, more broadly, are seeing net benefits to engagement, query volume, and clicks and conversions for advertisers in initial testing vs. legacy Search results. Sheridan noted this as an initial positive proof point against some investor concerns that AI may disrupt the monetization potential of its legacy formats and platforms over the long term. 

Concerning digital and streaming video, this keynote and Google’s recent Brandcast Upfront event showcased how Google plans to leverage its scale and position to capitalize on evolving consumer habits and the rise of creator content to introduce new solutions for advertisers.

Specifically, Sheridan noted Google’s recent announcements around new video ad formats, 3P distribution deals through DV 360, unique content, and scale of users as highlighting how the company is increasingly well-positioned to capitalize on evolving streaming & digital video trends over the long term.  

As outlined in Sheridan’s recently updated 10 Internet Themes for 2024, digital advertising is one of the few subsectors with his coverage where AI is seeing early adoption and monetization. 

Against this backdrop, Sheridan noted Alphabet is well positioned to capitalize on the theme of AI in the longer term, given its leading AI capabilities, infrastructure advantage, and benefits of scale concerning both users and advertisers to deploy new AI tools & services over the medium term. 

Sheridan remained constructive in the mix of Alphabet’s business and operating profile in the coming years.

Price Action: GOOGL shares traded lower by 1.11% at $175.88 at the last check Wednesday.

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