Impact of AI on Google's Return on Ad Spend - Analysts' Perspectives on the Tech Giant's Strategy

JMP Securities analyst Andrew Boone maintains Alphabet Inc GOOG GOOGL Google with a Market Outperform and a price target of $132.

The premium valuation reflects Google's vast TAM, scale across search, video, and the cloud, and high profitability.

On Tuesday at Google Marketing Live 2023, Google announced 20+ new ad products with the key theme of integrating AI to make it easier to do recommended marketing tactics across targeting, ad creative, and measurement. 

Ultimately, Boone came away believing that the implementation of AI is improving Google's return on ad spend as it personalizes consumer experiences, reduces friction for advertisers, and better allocates campaign dollars. 

The analyst has concerns that new AI models will shift search share to other platforms as the role of text boxes changes. However, Alphabet is well positioned with Cloud, YouTube, and 14 different products that serve over 500 million people, placing Alphabet well across nearly all digital tailwinds. At the same time, the analyst continues to view it as a leader in AI.

Morgan Stanley analyst Brian Nowak has an Overweight rating and a price target of $140 on the stock. The analyst highlights that Google Marketing Live delivered more detailed and tangible examples of how AI-driven products and tools can improve advertiser performance. 

He thinks Google's ad strategy focuses on 1) marketing customer connection, 2) creativity, and 3) confidence (aka performance). The AI is reshaping Google's products from Search to YouTube to back-end platforms that marketers engage with. 

Nowak notes that Google also continues to ramp up the pace of many of its newly announced products set to come soon (or at least by the end of this year). 

Like Google I/O, Brian views the Marketing Live as an event that will help investors better understand the suite of AI-driven products set to drive GOOGL's business for years.

Price Action: GOOG shares traded lower by 1.52% at $121.42 on the last check Wednesday.

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