Citi maintains Buy rating on Alphabet shares with $200 target

On Thursday, Citi analysts, led by Ronald Josey, reaffirmed their Buy rating on Alphabet Inc. (NASDAQ:GOOGL) with a steadfast price target of $200.00. The tech giant, currently valued at $1.84 trillion, has demonstrated robust financial health with a 13% year-over-year revenue growth. According to InvestingPro analysis, Alphabet appears undervalued at current levels, with multiple indicators suggesting strong fundamentals. The endorsement comes amid observations of changing dynamics within the search engine market. Apple (NASDAQ:AAPL)’s Senior Vice President of Services, Eddy Cue, indicated that Google Search volumes on Safari experienced a decline in April, marking the first instance of such a downturn. This shift is attributed to the growing popularity of alternative AI-driven search tools such as ChatGPT, which boasts over 500 million weekly active users and 20 million paying subscribers, along with other emerging platforms like Perplexity AI and Anthropic. Despite these challenges, InvestingPro data shows Alphabet maintains a strong financial position with more cash than debt on its balance sheet and excellent liquidity metrics.

Further stirring the competitive landscape, Apple may consider integrating these AI alternatives within Safari’s search results, although they are not expected to replace Google as the default option. The integration of OpenAI with Apple Intelligence in the upcoming iOS 18 also highlights the intensifying rivalry in search capabilities.

Despite the deceleration of cost-per-click (CPC) growth to +2% year-over-year in the first quarter, Citi’s focus remains on Alphabet’s innovation in generative AI, with notable developments such as Gemini, which has attracted over 350 million users, AI Overviews, and the beta version of AI Mode. The analysts anticipate further insights into Alphabet’s strategic response to these market shifts during the upcoming Google I/O event scheduled for May 20-21.

Alphabet’s commitment to evolving its products to maintain a competitive edge in generative AI is a central reason for Citi’s sustained Buy rating. The firm looks forward to the tech giant’s forthcoming announcements and product updates, which could potentially influence the company’s standing in the rapidly changing tech landscape. Trading at a P/E ratio of 16.77, the stock offers an attractive entry point relative to its near-term earnings growth potential. For deeper insights into Alphabet’s valuation and growth prospects, investors can access comprehensive analysis through InvestingPro, which offers exclusive financial metrics and expert research reports.

In other recent news, Google’s financial prospects are under scrutiny as the company faces potential challenges in its search engine business. Analyst Gene Munster from Deepwater Management has pointed out that Google’s reliance on sponsored ads may need reevaluation due to a shift towards AI-powered search results. Additionally, Apple’s consideration of implementing an AI search feature in its browser could further impact Google’s ad revenue, as highlighted by Apple’s Eddy Cue during a trial on Google’s search practices. The trial also revealed Apple’s exploration of alternative search providers like Perplexity and Anthropic, raising concerns about Alphabet’s future revenue from search.

Meanwhile, Meta, the parent company of Facebook (NASDAQ:META), is expected to continue growing despite the rise of AI platforms. A former head of ad partnerships at Meta emphasized Facebook’s robust data collection capabilities and user base as significant strengths. In the autonomous vehicle sector, Waymo announced plans to expand its fleet with 2,000 new robotaxis by 2026, supported by a new manufacturing plant in Metro Phoenix. This expansion is part of Waymo’s strategy to meet growing demand and enhance its autonomous ride-hailing service.

In the broader tech industry, Nvidia (NASDAQ:NVDA) led a decline among the Magnificent Seven stocks, which include Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Apple, Alphabet, Meta, and Tesla (NASDAQ:TSLA). The decline reflects a cooling of the recent tech rally amid uncertainties surrounding trade policy and economic direction. Additionally, media-exposed companies are facing pressure following President Trump’s announcement of a 100% tariff on films produced overseas, which could impact their profitability.

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