Google stock outlook boosted by analysts on GenAI advantages
Published: 11:03 22 Mar 2024 EDT
Google parent company Alphabet Inc (NASDAQ:GOOG) continues to be viewed as an AI winner in the digital advertising space by analysts at broker Wedbush, who have upped their 12-month price target on the stock.
The analysts raised their price target from $160 to $175 and awarded the stock an ‘Outperform’ rating. Alphabet shares traded up 2% at about $152 on Friday morning.
They also added Alphabet to the Wedbush “Best Ideas List.”
“We believe the structural risks to Google Search are overstated and continue to view Alphabet as a net beneficiary of generative AI,” the analysts wrote.
They highlighted that Alphabet’s competitive advantages were multifaceted, including its breadth of data to develop and train AI models across text, images, and video; a massive user base spanning Google Search, YouTube, Android, and other Google applications; AI-optimized compute infrastructure supported by custom silicon; access to leading engineering talent; and a proven track record of effective monetization.
“While longer-term debates related to generative AI persist, we think the setup has become more attractive in recent weeks with a reversal in sentiment emerging,” the analysts added.
They wrote that they were specifically encouraged by management’s comments during an investor conference earlier this month regarding generative AI and Google Search as well as media reports earlier this week that Google and Apple Inc (NASDAQ:AAPL, ETR:APC) are negotiating to integrate Google’s AI product Gemini, formerly Bard, in upcoming iPhone software updates.
Should management take more direct action to assuage investor concerns in the near term, the analysts see potential catalysts ahead.
The first is better communication related to the business model implications of Search Generative Experience (SGE) and additional feedback from early tests.
“We have confidence in Google’s ability to further optimize the economics of SGE prior to launch and point to the company’s successful ability to navigate prior platform changes (desktop to mobile),” they wrote.
Other potential catalysts highlighted by the analysts were more aggressive cost reengineering to protect margins as resources continue to be redirected towards generative AI and continued enterprise and partnership momentum across generative AI enterprise use cases and other monetization opportunities of Google’s generative AI models, such as the confirmation of a licensing agreement with Apple.
