How are energy investors positioned?
On Friday, TD Cowen maintained a Buy rating on Alphabet (NASDAQ:GOOG) while reducing the price target to $210 from the previous $220. The adjustment was based on projections related to Google (NASDAQ:GOOGL) Cloud’s increased capital expenditures (capex) for artificial intelligence (AI) compute capacity to meet rising customer demand. According to InvestingPro data, Alphabet maintains a strong financial position with an impressive health score of "GREAT" and holds more cash than debt on its balance sheet.
According to the firm, Google Cloud is expected to generate 3.7 times more incremental revenue from General AI (GenAI) compared to the increased GenAI capex from 2026 to 2030. This is a jump from the approximately 2.5 times revenue generated from 2019 to 2022, before the focus on GenAI. The analysts believe that this revenue increase will be driven by the ramping up of services and a flattening of capex growth in the latter period. The company’s strong revenue growth trajectory is already evident, with a 13.9% year-over-year increase to $350 billion in the last twelve months.
TD Cowen highlighted Gemini, Google’s initiative, as a key competitive advantage over competitors such as Amazon (NASDAQ:AMZN) Web Services (AWS) and Microsoft (NASDAQ:MSFT) Azure. The expectation is that Gemini will contribute to a higher percentage of General AI revenue within Google’s total revenue stream. For detailed analysis of Alphabet’s competitive position and growth prospects, access the comprehensive Pro Research Report available on InvestingPro, which covers 1,400+ top US stocks.
The firm adjusted its capex estimates for Alphabet upwards, taking into account the infrastructure buildout for General AI. These revisions have influenced the new price target. Despite the reduction in the price target, TD Cowen’s outlook for Alphabet remains positive, as reflected in the maintained Buy rating. The company’s strong financial metrics support this outlook, with a healthy current ratio of 1.84 and robust return on equity of 33%.
In other recent news, Google has announced significant upgrades to its Gemini app, introducing new features and enhancements. These updates include an advanced version of the 2.0 Flash Thinking Experimental model and expanded access to the Deep Research tool, now available in over 45 languages. Google DeepMind also unveiled two new AI models, Gemini Robotics and Gemini Robotics-ER, designed to enhance robotic capabilities by integrating vision, language, and action. Additionally, Google is reportedly nearing a $115 million acquisition of AdHawk Microsystems Inc., a Canadian eye-tracking technology firm, highlighting its interest in headsets and smart glasses.
Moreover, Android, developed by Google, has launched new features aimed at improving user safety and entertainment, including an AI-powered Scam Detection tool and enhanced gaming options for Android Auto. In a policy update, Google will allow certified advertisers to personalize ads for skill-based games in India, excluding gambling-related content, starting March 2024. These developments reflect Google’s ongoing efforts to innovate and expand its technology offerings while adhering to local regulations.
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