Bullish indicating open at $55-$60, IPO prices at $37
Wednesday - Baird analyst Colin Sebastian has revised the price target on Alphabet (NASDAQ:GOOG) shares, bringing it down to $190 from the previous $225. Despite the reduction, Sebastian continues to give the stock an Outperform rating. Currently trading at $146.58, InvestingPro analysis suggests the stock is undervalued, with 15 additional ProTips available for subscribers to make informed investment decisions.
The adjustment comes as a response to the anticipated impacts of macroeconomic challenges on the digital advertising sector. Sebastian points out that while performance advertising budgets, which are more closely tied to sales, are generally less affected than brand advertising during economic slowdowns, Alphabet's significant share of the digital ad market outside China means it is not immune to downturns. With a market capitalization of $1.77 trillion and an "GREAT" financial health score according to InvestingPro, the company maintains strong fundamentals, including a healthy current ratio of 1.84 and more cash than debt on its balance sheet.
Sebastian also expects Alphabet's YouTube and Network revenues to face headwinds from any macroeconomic downturn, while higher tariffs could potentially increase infrastructure costs for Google (NASDAQ:GOOGL) Cloud Platform (GCP). Based on these factors, Baird has revised its 2025 revenue estimate for Alphabet downward to $385.0 billion, a year-over-year increase of 10%, from the previous estimate of $389.7 billion. Similarly, the GAAP operating income estimate has been adjusted to $122.1 billion, which corresponds to a 31.7% margin, down from the earlier projection of $122.7 billion. The company has demonstrated strong revenue growth of 13.87% over the last twelve months, with InvestingPro's comprehensive analysis showing robust financial metrics and growth potential.
The growth forecasts for the company's various segments have also been updated. Search is now expected to grow by 8.4%, YouTube by 9.6%, and Google Cloud by 28% in 2025. The revised price target of $190 reflects not only these updated estimates but also a sector-wide contraction in multiples. Sebastian's valuation is based on 13 times the estimated 2026 enterprise value to EBITDA (EV/EBITDA) and 20 times the projected 2026 price to earnings (P/E). Currently, the stock trades at a P/E ratio of 17.97, which appears attractive relative to its near-term earnings growth potential.
In other recent news, Alphabet Inc. has announced several significant developments. The company reported that its Deep Research feature is now available on the Gemini 2.5 Pro Experimental model, enhancing the capabilities for Gemini Advanced subscribers. This AI model is designed to improve efficiency in research processes and has been well-received in testing. Additionally, Alphabet has launched Sec-Gemini v1, an experimental AI model aimed at advancing cybersecurity, which is freely available for research purposes to selected entities.
In another development, Rapidus, a Japanese chipmaker, is in discussions with Alphabet and other major tech companies for the mass production of advanced semiconductors by 2027. In terms of financial analysis, TD Cowen has maintained a Buy rating on Alphabet but has lowered its price target from $210 to $195, citing concerns over consumer sentiment and tariff impacts. Despite lowering forecasts, TD Cowen's net revenue estimate for Alphabet's first quarter is up 12.4% year-over-year, slightly above consensus.
Furthermore, there have been leadership changes within Alphabet's AI division, with Josh Woodward (NASDAQ:WWD) taking over the role previously held by Sissie Hsiao in the AI chatbot project, Gemini. These developments reflect Alphabet's ongoing efforts to innovate in AI technology and adapt to shifting market conditions.
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