Bullish indicating open at $55-$60, IPO prices at $37
On Wednesday, KeyBanc Capital Markets adjusted its outlook on Alphabet Inc (NASDAQ:GOOGL), reducing the price target to $185 from the previous $202, while maintaining an Overweight rating on the company's shares. Currently trading at $145.32, the stock has recently approached its 52-week low of $140.53, though InvestingPro analysis suggests the company remains undervalued based on its proprietary Fair Value model. The revised target by analyst Justin Patterson reflects a more conservative estimate due to anticipated challenges in the advertising sector and potential slowdown in enterprise IT spending on Google Cloud.
Alphabet is facing a complex advertising landscape, with less room to increase advertisement load on its Search platform compared to its competitor Meta (NASDAQ:META). YouTube, another significant revenue source for Alphabet, is also vulnerable to fluctuations in brand spending. Despite these concerns, KeyBanc sees Alphabet as having greater opportunities for cost savings relative to Meta, which could offset some revenue pressures.
The firm has revised its revenue and EPS forecasts for Alphabet for the years 2025 and 2026, projecting a decrease of 1.7% and 2.9% in revenues, along with a 3.4% reduction in EPS for both years. These adjustments account for a softer advertising environment and a cautious stance on enterprise IT spending, especially concerning Google Cloud's growth prospects.
KeyBanc's analysis suggests that Alphabet could potentially mitigate the impact on earnings per share through further headcount reductions, although such measures have not been significantly factored into their model. The new price target of $185 is based on a 19 times multiple of the firm's projected 2026 earnings per share, which has been slightly lowered to reflect the reduced earnings forecast.
Despite the price target reduction, KeyBanc remains positive about Alphabet's long-term growth, suggesting that a macroeconomic downturn might provide Alphabet with additional time to refine its AI strategy and strengthen its market position. With a P/E ratio of 17.97 and strong financial health metrics according to InvestingPro, which has identified 15+ additional key insights for this stock, Alphabet appears well-positioned for future growth. Investors seeking detailed analysis can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers. The firm anticipates that Alphabet's strategy will become clearer at the upcoming Google Cloud Next (LON:NXT) event this week and the Google I/O conference in May. KeyBanc's Overweight rating indicates their confidence in Alphabet's potential for long-term growth despite near-term challenges.
In other recent news, Verizon (NYSE:VZ) has reported a notable increase in sales following the deployment of an AI assistant developed using Google models. This AI tool, fully scaled by January, has boosted sales through Verizon's 28,000-person service team by nearly 40% since its implementation. Meanwhile, BofA Securities has maintained a Buy rating for Alphabet, citing stable web traffic trends and the potential for increased monetization through new AI features. Alphabet's stock is trading at a valuation considered low compared to the S&P 500 average, with upcoming events like the Google Cloud Conference potentially acting as catalysts for the stock.
Furthermore, Google has announced the availability of its Deep Research feature on its Gemini 2.5 Pro Experimental model, enhancing efficiency for Gemini Advanced subscribers. This feature has been well-received, surpassing other providers in testing and offering improved analytical reasoning and information synthesis. Cantor Fitzgerald has reiterated a Neutral rating on Alphabet, highlighting the over 40% year-over-year growth of Google Cloud Platform in the first quarter. The cloud service has gained traction, especially in sectors such as Healthcare and Travel, with expectations for continued growth in 2025. Despite advancements in AI and security, GCP is still seen as trailing behind competitors like Azure and AWS in some areas.
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