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On Thursday, BMO Capital Markets adjusted its outlook on Alphabet Inc. (NASDAQ:GOOGL), reducing the price target from $230.00 to $200.00, while still maintaining an Outperform rating on the shares. With a market capitalization of $1.84 trillion and a P/E ratio of 19.1, InvestingPro analysis indicates Alphabet is currently undervalued. The move reflects a reassessment of Alphabet’s advertising business, particularly in the search segment, and anticipates the impact of new AI-driven advertising products.
BMO Capital’s analyst pointed out that while Alphabet’s Core Search Click-Through Rates (CTRs) for certain campaigns have declined by over 10%, the company’s recent introduction of AI Overview Ads has not been fully appreciated by the market. These AI Overview Ads are reported to produce higher CTRs than the core search offerings. Despite this, the firm has revised its search revenue forecasts downward due to an uncertain advertising outlook. The company maintains strong fundamentals with a 58.2% gross profit margin and 13.87% revenue growth over the last twelve months.
The analysis also highlighted Google Cloud Platform’s (GCP) customer base, which primarily consists of startups and the private sector. This composition is expected to shield GCP from near-term downside risks, although spending projections for the second half of 2025 remain undetermined.
Additionally, BMO Capital noted positive returns on ad spend (ROAS) from YouTube’s Direct Response (DR) advertising offerings, indicating some areas of strength within Alphabet’s broader advertising ecosystem.
In conclusion, while BMO Capital has lowered its estimates and price target for Alphabet to $200 from $230, the firm reiterates its Outperform rating, signaling continued confidence in the company’s long-term prospects despite near-term challenges. For a deeper understanding of Alphabet’s valuation and growth prospects, InvestingPro subscribers can access the comprehensive Pro Research Report, which includes detailed financial analysis and growth projections.
In other recent news, Alphabet has faced several significant developments. Truist Securities has adjusted its price target for Alphabet, lowering it from $220 to $200, while maintaining a Buy rating. This revision is attributed to anticipated impacts from new tariffs affecting key sectors like Retail and Automotive. In a separate analysis, Cantor Fitzgerald also reduced its price target for Alphabet to $159, citing expectations for a slowdown in revenue growth for Search and YouTube in 2025. Furthermore, Alphabet is dealing with a class action lawsuit in the U.K., which accuses the company of abusing its market dominance in online search, potentially leading to damages exceeding $6.6 billion. This lawsuit, filed in the U.K. Competition Appeal Tribunal, alleges that Google has maintained its position through contracts that pre-install its search engine on devices and by paying Apple (NASDAQ:AAPL) to set it as the default on iPhones. Meanwhile, Google has made strides in using AI to curb fraudulent ads, as highlighted in its 2024 Ads Safety Report, which noted the suspension of over 700,000 advertiser accounts linked to scams. Additionally, the company announced a new integration of Anthropic’s AI assistant, Claude, with Google Workspace, aimed at enhancing user interaction and productivity. These recent developments are being closely monitored by investors as Alphabet navigates through regulatory challenges and continues its focus on AI advancements.
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