This Bullish Google Analyst Does Not Expect Immediate Upside From AI Chatbot, Unlike Microsoft

Mizuho analyst James Lee reiterates a Buy rating on Alphabet Inc GOOG GOOGL Google and a price target of $135.00.
Mizuho's recent agency checks indicated that advertising remained challenging from elevated inflation and tighter consumer budgets.
Heading into the rest of FY23, he expects advertisers to optimize their ad spending, focusing on targeting existing customers that provide a higher LTV. Lifetime Value or LTV is an estimate of the average revenue that a customer will generate throughout their lifespan as a customer.
However, consensus ad revenue growth of 3.4% YoY appears reasonable, the analyst says in a Friday note titled "Ad Revenue Checks Mixed, but Further Cost Reductions on the Horizon; Maintain Buy."
Mizuho's recent industry call with a leading SEO firm indicated that Generative AI would have a limited impact on search market share given the limited commercial use cases and Google's significant infrastructure advantage over its peers.
Lee estimates Alphabet could reduce its cost base by $7.5 billion in FY24, or 2.2% of revenues, through the combination of renewable energy consolidation, employee reductions, and operating expense optimization, which could generate an upside of 8% to FY24 consensus operating income.
He sees a limited downside to FY23 revenue growth and cost optimization efforts on the horizon and likes the setup into the quarter.
Price Action: GOOG shares traded lower by 0.27% at $105.61 on the last check Friday.

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