Analysts update Alphabet stock price target after AI event

Google is making moves to strengthen its AI presence.

At the recent Gemini at Work event, the company highlighted a 35x increase in usage of its Gemini platform, a generative AI chatbot. The event showcased 185 examples of AI integration in businesses ranging from healthcare providers to car manufacturers to retailers.

For example, Volkswagen (VWAGY) of America has integrated Google Cloud’s artificial intelligence into its myVW mobile app, where drivers can explore their owner’s manuals and ask questions like “how do you change a flat tire.”

Google Cloud is gaining market share.

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Snap (SNAP) also partnered with Google Cloud. The social media giant is using Google’s AI technology to improve its My AI chatbot on Snapchat. This partnership allows Snap to offer more interactive features by leveraging Gemini’s ability to process text, audio, images and video.

Warner Bros. (WBD) have also implemented an AI-based subtitling solution using the Google Cloud Vertex AI platform, which reduces the time and cost of subtitling while improving the accuracy of unscripted programming.

Generative AI is driving growth in the cloud computing market, where Google ranks third behind Amazon and Microsoft. Global enterprise spending on cloud infrastructure services in Q2 reached $79 billion, up 22% year over year, according to Synergy Research Group.

Amazon now leads the market with a 32% share, while Google, with 12%, is gaining momentum alongside Microsoft as of Q2 2024.

Related: Analysts Rethink Amazon Share Price Targets After Earnings

Google’s Recent Earnings: Strong performance amid AI growth

Alphabet (GOOGLE) Google’s parent company, recently reported strong growth in its cloud segment, reflecting strong demand for AI.

The company’s most recent Q2 financial report in July showed earnings per share of $1.89, slightly above the forecast of $1.84. Revenue reached $84.74 billion, up 14% year over year, beating analysts’ expectations of $84.19 billion.

Google’s advertising segment, which includes Google search ads and YouTube, continues to account for the largest share of total revenue. The segment generated $64.6 billion for the quarter, representing 76% of total revenue and reflecting 11% year-over-year growth.

Related: Analysts Reset Price Target on Alphabet Shares Ahead of Key Court Event in September

The cloud segment, while only accounting for 12.2% of total revenue, saw significant growth, with revenue up 28% year-over-year to $10 billion. The growth reflects the growing adoption of artificial intelligence among businesses and consumers.

Alphabet highlighted its accelerated AI efforts in its July earnings call, with advances being made in Google Research and Google DeepMind. “We’re innovating at every level of the AI ​​stack,” said CEO Sundar Pichai.

However, the US Department of Justice is concerned that Google’s strong position in search could lead to an unfair advantage in AI development. An antitrust lawsuit against Google is ongoing, which began in early September.

The DOJ is considering restrictions on Google’s use of website content for AI products, as well as extensions to the Chrome browser or Android operating system, according to a Bloomberg report.

Analysts have mixed opinions about Alphabet’s future

Analysts have recently responded to Google’s AI advances with mixed reactions.

Tigress Financial on September 26 raised Alphabet’s price target to $220 from $210 and maintains a strong buy rating, citing continued strength in Google’s search and cloud segments, according to thefly.com.

The analyst expects generative AI Gemini to continue fueling revenue and cash flow growth, and points out that the raised price target indicates a potential return, including dividends, of more than 36% from current levels.

JMP Securities analyst Andrew Boone reiterated positive views following the Gemini event, maintaining an outperform rating and a $200 price target on Alphabet shares.

Oppenheimer, on the other hand, cut its price target on Alphabet from $210 to $185, with an outperform rating.

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The firm notes that while the impact of labeling Google search a monopoly is uncertain, investors are considering the potential loss of exclusivity with Apple. (AAPL) likely capping Alphabet’s price-to-earnings ratio at 20 times.

Google currently earns 31 percent of its gross search revenue from Apple devices and pays 36 percent to Apple for that exclusivity, resulting in a net ad exposure of 19 percent, the analyst says.

Alphabet shares are up 17.8% year-to-date since Sept. 26, while the S&P 500 is up more than 21% over the same period.

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