Morgan Stanley has adjusted its price target for Alphabet (NASDAQ: NASDAQ:GOOGL), the parent company of Google, reducing it to $190 from the previous $205.
The firm has maintained its Overweight rating on the tech giant's shares. The adjustment comes amid considerations of various issues that the Department of Justice (DoJ) and a judge are currently addressing, which include the intensity of competition, advantages stemming from data scale, and concerns over anti-competitive pricing practices.
The analysis by Morgan Stanley suggests that potential remedies to these issues could encompass a range of actions. These might include the removal of exclusivity agreements, the introduction of a choice screen, the sharing of data, controls on advertising prices, and limits on distribution payments.
Despite these considerations, the firm believes that a breakup of Alphabet is an unlikely outcome.
Morgan Stanley has introduced an interactive model that allows for the adjustment of search pricing, traffic, and Traffic Acquisition Costs (TAC), with an eye on the implications for Alphabet's EBIT (Earnings Before Interest and Taxes) for the year 2028. The scenarios projected range from a positive impact of 15% to a negative impact of 23% on EBIT.
In light of the long-term uncertainties which are expected to affect the company's stock multiple, Morgan Stanley anticipates that Alphabet's multiple will remain lower and range-bound between 17 times and 20 times. This projection has led to the revised price target of $190, which is based on an average 20 times multiple of the company's expected earnings for 2025 and 2026.
In other recent news, Needham has maintained a Buy rating on Alphabet amidst ongoing discussions around the company's antitrust case. The focus has been on Alphabet's stronghold in the search market and the implications of a recent court ruling against the tech giant. Potential remedies suggested by regulators include barring Google from future exclusive agreements or compelling the sale of certain assets.
On a different note, Alphabet's Google is exploring the establishment of a significant data center in Vietnam, marking a first for a major U.S. tech firm in the Southeast Asian country. The move is driven by the growing number of Google's cloud services clients within Vietnam and the rapidly expanding digital economy.
Artificial Intelligence (AI) startups OpenAI and Anthropic, both supported by Alphabet, have inked deals with the U.S. government for further research, testing, and evaluation of their AI models. This comes amid heightened regulatory attention on the ethical and secure deployment of AI.
In California, a contentious AI safety bill, SB 1047, has passed the legislature and now awaits Governor Gavin Newsom's signature. The bill has faced opposition from tech companies, including Alphabet's Google, over concerns that it could stifle innovation.
InvestingPro Insights
As Morgan Stanley updates its outlook on Alphabet (NASDAQ:GOOGL), investors may find additional context from InvestingPro data and tips useful. Alphabet is currently trading at a P/E ratio of 23.34, which is considered low relative to its near-term earnings growth. This aligns with Morgan Stanley's view that the stock's multiple will remain lower, suggesting a potentially attractive valuation for investors. Additionally, Alphabet's strong revenue growth of 13.38% over the last twelve months as of Q2 2024 indicates a robust financial performance, which may bolster confidence despite regulatory challenges.
Alphabet's position as a prominent player in the Interactive Media & Services industry, coupled with a high return on assets of 21.97%, suggests that the company's operational efficiency remains high. Furthermore, according to InvestingPro, Alphabet holds more cash than debt on its balance sheet, which provides financial flexibility and may help mitigate any adverse effects from potential regulatory remedies.
Investors looking for deeper insights can find additional InvestingPro Tips on Alphabet, including analysis on cash flow coverage, liquidity, and profitability predictions for the year, by visiting the InvestingPro platform. With over 10 additional tips available, these insights can provide a more comprehensive view of Alphabet's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.