Alphabet Set To Report Strong Q2 Results With Increased Search Revenue: Analyst Bullish On Google Parent Flags 3 Things That Will Be On His Radar

Alphabet, Inc. GOOGL GOOG is scheduled to release its second-quarter results after the market close on Tuesday, and ahead of the release, a bullish analyst reiterated his positive stance. The Google parent is the first AI stalwart to report this earnings season and therefore, all eyes will be riveted on the report.

Analysts, on average, expect the company to report earnings of $1.85 per share compared to the year-ago’s $1.44, and revenue of $84.20 billion versus last year’s $74.60 billion.

The Alphabet Analyst: Wedbush analyst Scott Devitt reiterated an Outperform rating and $205 price target for the stock.

The Alphabet Thesis: “The setup remains positive heading into 2Q results,” said Devitt, citing findings from the firm’s ad survey and agency commentary that pointed to continued strength for Google Search. The analyst said he raised his Google Search revenue growth estimate from 12% to 12.8% to $47.75 billion. Sequentially search revenue is now expected to see a more modest sequential deceleration in growth, he added.

The survey results have increased conviction in spending intent for the full year, the Wedbush analyst said.

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Devitt expects operating income to exceed consensus estimates by about 2%. “With cost controls still in place, we expect continued operating margin expansion in 2Q,” he said, adding that operating margin will likely come in at 31.7% versus the 31.1% consensus estimate.

The analyst said the chances of seeing a negative surprise related to spending are relatively low in the second quarter as the increased capital intensity is better understood and estimates for depreciation & amortization and capex have risen materially following guidance last quarter.

Devitt said he would focus on the following:

operating expense and CapEx growth related to AI investments
2H advertising growth as comps become more challenging
ongoing monetization of AI services within the cloud unit

Alphabet Price Action: Alphabet’s Class A shares listed on the Nasdaq rose 1.43% to $180.20 in premarket trading on Monday, according to Benzinga Pro data. The stock is up over 27% for the year-to-date period.

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