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Key Takeaways
- Shares of Google parent Alphabet lost ground Wednesday amid concerns about higher spending on artificial intelligence (AI) investments.
- Analysts were more bullish, with several raising their price targets based on Google’s strengths and signs of benefits from AI.
- However, some warned Alphabet could still face an “uphill climb ahead” in the second half due to tougher comps and expected search and YouTube deceleration.
Shares of Google parent Alphabet (GOOGL) lost ground Wednesday amid concerns about the tech giant’s spending on artificial intelligence (AI) investments, despite an earnings beat. However, several analysts suggested worries about costs could be overblown, and raised their price targets for the stock on Google’s strengths, as well as early benefits from AI.
Citi analysts raised their price target for the stock to $212 from $190, while J.P. Morgan analysts lifted their price objective to $208 from $200. Alphabet shares were down close to 4% at $176.94 in intraday trading Wednesday, though they’ve still gained over 25% since the start of the year.
Google Cloud and Search Strength Aided by AI
J.P. Morgan analysts highlighted Alphabet’s “notable strength” in search, Google Cloud, and the company’s operating income. They added that the company “remains on the offensive in GenAI,” integrating Gemini into “nearly all” Google products.
During the company’s earnings call, Alphabet CEO Sundar Pichai said in increasing spending to invest in AI infrastructure, the company is combatting the “risk of underinvesting.”
Citi analysts said they are “incrementally positive” on Alphabet shares after the second quarter earnings report, and were “encouraged with AI Overviews improving search engagement suggesting greater traction across Google’s GenAI tools.”
Tougher Second Half Ahead
Jefferies analysts, who raised estimates but maintained their $220 price target, noted that Alphabet could have an “uphill climb ahead” with a tougher second half of the year for its advertising business, as well as an expected deceleration in search and YouTube.
“Despite the tougher comps, we expect GOOGL can grind higher in 2H thanks to continued strength in core Search, potential for Google Cloud to further accelerate on AI, and additional margin surprises,” the analysts said.