On Wednesday, Loop Capital updated its outlook on Alphabet Inc. (NASDAQ:GOOGL) shares, increasing the price target to $185 from $170 while maintaining a Hold rating on the shares. The adjustment comes as the firm introduces its forecast for the year 2026, shifting its valuation framework to be based on these estimates.
The analyst at Loop Capital highlighted that the new price target reflects a continued valuation of 15 times the earnings per share (EPS) for core Google operations, and now 20 times the adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for Google Cloud in 2026.
Moreover, the value of net cash was factored into the updated price target. The firm acknowledged Alphabet's management for its prudent spending and increased stock repurchase efforts during a period marked by longer-term uncertainty and valuation pressure.
Loop Capital's analysis does not foresee immediate catalysts for a change in market sentiment, particularly due to a lack of signs pointing to an acceleration in revenue growth driven by AI search technologies.
While the analyst recognized the potential of general AI efforts from competitors such as Meta AI, SearchGPT, Apple (NASDAQ:AAPL) Intelligence, and Alexa to raise concerns about search query displacement, they also noted that Alphabet's promising earnings setup could lead to a significant upside if investor sentiment were to improve. However, they anticipate that valuation pressure will likely persist for the time being.
In other recent news, the United States government has renewed its request for Italy to drop its digital services tax, which targets tech giants such as Meta Platforms Inc (NASDAQ:META) and Google. Italian authorities are considering expanding the tax's reach in the upcoming 2025 budget, which is expected to generate an additional €51.6 million.
In a significant legal development, a federal judge dismissed a class action lawsuit against Google, which accused the tech giant of profiting from fraudulent Google Play gift cards.
In political news, Donald Trump has pledged to pursue legal action against various individuals, including technology leaders like Meta CEO Mark Zuckerberg and Google, accusing them of election interference. Meanwhile, Mukesh Ambani, head of Reliance Industries (NS:RELI), is planning a 2025 listing for his telecom business, Jio, in Mumbai, with an estimated valuation of over $100 billion. The company has also collaborated with tech giants such as Google and Meta.
Lastly, U.S. tech companies have expressed concerns over a draft law in Vietnam that proposes stricter data protection regulations and restricts the transfer of data outside the country. The draft law could significantly impact the operations of social media platforms and data center operators, including Meta Platforms Inc and Google. These are recent developments that investors should be aware of.
InvestingPro Insights
Alphabet Inc. (NASDAQ:GOOGL) continues to demonstrate strong financial performance, aligning with Loop Capital's updated outlook. According to InvestingPro data, the company's revenue growth remains robust at 14.38% over the last twelve months, with a particularly strong quarterly growth of 15.09% in Q3 2024. This growth trajectory supports Loop Capital's decision to maintain a Hold rating while increasing the price target.
InvestingPro Tips highlight Alphabet's financial strength, noting that the company "holds more cash than debt on its balance sheet" and "cash flows can sufficiently cover interest payments." These factors contribute to the company's stability and ability to weather potential market uncertainties, as mentioned in Loop Capital's analysis.
Furthermore, an InvestingPro Tip indicates that Alphabet is "trading at a low P/E ratio relative to near-term earnings growth," with a current P/E ratio of 22.55. This suggests that despite the lack of immediate catalysts mentioned by Loop Capital, the stock may still present value for investors.
For readers interested in a more comprehensive analysis, InvestingPro offers 9 additional tips for Alphabet, providing a deeper understanding of the company's market position and potential.
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