Is Alphabet Losing Its Edge? Analysts Dive Deeper Into Q3 Results

Zinger Key Points
  • Alphabet’s strategic position in GenAI is best in class, one analyst said.
  • The company has little room for incremental EPS or FCF expansion, another analyst added.

Shares of Alphabet Inc GOOG GOOGL were plummeting on Wednesday, continuing their downtrend, after the company released its third-quarter results.

The results came amid an exciting earnings season. Here are some key analyst takeaways from the earnings release.

Needham On Alphabet

Analyst Laura Martin maintained a Buy rating, while raising the price target from $140 to $160.

Google-parent Alphabet’s third-quarter revenues climbed 11% year-on-year to $76.7 billion and operating expenses rose 6% to $22.1 billion, implying operating margins of 28%, Martin said in a note.

Google’s strategic position in generative AI is “best in class,” given the company’s statements that more than 60% of the world's 1,000 largest companies were Google Cloud customers and over 50% of all funded GenAI start-ups are Google Cloud customers, the analyst stated.

Check out other analyst stock ratings.

Morgan Stanley On Alphabet

Analyst Brian Nowak reiterated an Overweight rating, while reducing the price target from $155 to $150.

Alphabet’s ad results coming in-line with expectations “speak to resiliency of GOOGL's leading ad business,” Nowak stated.

“Looking ahead, GOOGL is seeing sign of stabilization of consumption within Cloud, which is an important signal for their own P&L and the Public Cloud industry,” the analyst wrote. “AI investments (capex) are ramping while efficiency initiatives grow to fund growth and deliver return to shareholders,” he added.

Bernstein On Alphabet

Analyst Mark Shmulik reaffirmed a Market Perform rating and price target of $140.

“Ad revenues matched our bullish checks and beat where it mattered,” Shmulik wrote in a note. “Google Cloud revenues disappointed against bullish expectations,” he added.

“Gone are the days of management alluding to a visible inflection in 2024 operating margins,” the analyst stated. “Ramping AI spend, as well an annual $2Bn Sunday Ticket expense means Google needs to structurally re-engineer their cost base just to try to stay in the same place with operating margins in the high 20s, leaving little room for incremental EPS/FCF expansion,” he further said.

GOOGL Price Action: Shares of Alphabet were down 8.8% to $127.70 at the time of publication Wednesday.

Photo: Shutterstock

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Posted In: Analyst ColorEarningsNewsPrice TargetReiterationAnalyst RatingsMoversTrading IdeasBernsteinBrian NowakExpert IdeasLaura MartinMark ShmulikMorgan StanleyNeedham
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