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On Wednesday, Wolfe Research adjusted its outlook on Alphabet stock (NASDAQ:GOOGL), reducing the price target from $220.00 to $210.00, while maintaining a Peerperform rating. According to InvestingPro data, analyst targets for Alphabet currently range from $200 to $235, with 15 analysts recently revising their earnings expectations downward for the upcoming period. The revision follows a thorough analysis of the company’s Search revenue projections, taking into account the shift in queries towards AI-based models and insights from a proprietary survey conducted by the firm.
Shweta Khajuria, an analyst at Wolfe Research, provided insight into the reasoning behind the adjustment, stating, "Post our bottoms-up Search model deep dive that analyzes the impact of mix-shift of queries to AI-based models and our proprietary survey results, we are lowering our FY25/26 Search revenue ests." Despite the lowered revenue expectations, the firm’s stance on Alphabet’s stock remains positive due to several key factors.
Wolfe Research continues to support an Outperform rating for Alphabet, citing the company’s substantial scale, ongoing investments in AI, and its leading position in various categories. This aligns with the company’s robust financial performance, as InvestingPro data shows revenue growth of 13.87% and a strong financial health score of "GREAT." With a market capitalization of $2.15 trillion and a P/E ratio of 21.68, Alphabet maintains its position as a prominent player in the Interactive Media & Services industry. Khajuria elaborated on the basis for the optimistic outlook, "Our Outperform rating is based on our long-term view that the company’s scale, AI investments, category leadership position, and product catalysts should enable Alphabet to maintain digital advertising market, gain share in Cloud computing, generate new sources of revenue, and remain highly competitive in the Gen AI race."
The report also suggests that Alphabet’s current valuation is reasonable when adjusted for growth prospects. This assessment reflects the firm’s confidence in Alphabet’s ability to leverage its strengths to sustain its competitive edge, particularly in the rapidly evolving AI landscape. InvestingPro analysis indicates the stock is currently trading slightly below its Fair Value, with strong fundamentals including sufficient cash flows to cover interest payments and liquid assets exceeding short-term obligations. For deeper insights into Alphabet’s valuation and over 30 additional key metrics, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
Wolfe Research’s price target reduction comes amid a broader context of industry shifts towards AI-driven technologies, which are influencing company strategies and revenue streams. Alphabet, with its significant investments in AI and cloud computing, is positioned to adapt to these changes and potentially capitalize on new opportunities.
In other recent news, Alphabet Inc. reported earnings that were largely in line with expectations, with revenues slightly missing Wall Street estimates at approximately $96.5 billion against projections of $96.6 billion. Despite this, Alphabet experienced a 12% year-on-year revenue increase on a foreign exchange-neutral basis, with a 32.1% operating margin. Analyst firms have made adjustments to their outlooks for Alphabet, with Scotiabank (TSX:BNS) revising its price target to $232 while maintaining a Sector Outperform rating, and JPMorgan lowering its target to $220 but keeping an Overweight rating. Both firms noted Alphabet’s significant capital expenditure plans for 2025, estimated at around $75 billion, which is expected to impact future profitability due to increased depreciation.
In a separate development, BofA Securities reiterated a Buy rating for Alphabet, highlighting strong growth in search volumes and robust revenue growth for Google Search in the fourth quarter of 2024. The firm also noted the potential for AI-driven activities to enhance monetization of Google’s search services. Additionally, Google has introduced quantum-safe digital signatures in its Cloud Key Management Service, aiming to strengthen its post-quantum cryptography strategy.
Furthermore, Google announced the public preview of a free version of its AI-coding assistant, Gemini Code Assist, which is now available for individual users. This initiative seeks to make AI tools more accessible to developers and has already been adopted by several Canadian startups. These recent developments reflect Alphabet’s ongoing efforts to expand its technological capabilities and maintain its competitive edge in the tech industry.
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