Aug. 29, 2023 8:53 PM ET Alphabet Inc. (GOOGL)
, GOOG
- In Q2, Google has announced a bunch of new products with focus on AI.
- It is likely that advertising spending rebound has already begun, as new search features combined with strong consumer will boost specific ARPUs.
- On the cloud side, Alphabet remains a strong player, outpacing wide market, despite general slowdown.
- Cost reductions and growing share of higher value-added products will be a strong margin support.
- For now, further positive is mostly reflected in the company’s prices and the growth potential is limited, so we remain in the HOLD status.
This article discusses Alphabet Inc. (NASDAQ: GOOGL), the parent company of Google, and its performance in Q2 2023. Here are the key points:
- Product Focus on AI: Google has announced several new products in Q2, with a significant focus on artificial intelligence (AI). These new AI-driven products are expected to boost Average Revenue Per User (ARPU) and overall revenue.
- Advertising Rebound: Despite a slowdown in the advertising industry, Alphabet has seen signs of advertising spending rebounding. The introduction of AI-powered chatbots and other features has contributed to increased customer activity and marketing budgets.
- Cloud Market Strength: Alphabet remains a strong player in the cloud services market, outpacing the wider market. Its revenue from cloud services increased significantly in Q2.
- Margin Support: The company has implemented cost reductions and is increasing its share of higher value-added products, which is expected to support profit margins.
- Revenue Forecast: Due to the faster-than-expected recovery in advertising spending, the article raises revenue forecasts for Alphabet in both advertising and cloud segments for 2023 and 2024.
- Valuation and Target Price: The target price for Alphabet’s shares is raised from $127 to $140, reflecting increased EBITDA forecasts. The article maintains a “HOLD” rating for Alphabet’s stock.
- Conclusion: While Alphabet is seen as a promising long-term company, the article suggests that the potential for further share price growth may be limited because the positive effects of AI technology development and advertising budget recovery are already factored into the company’s market value.
In summary, Alphabet is showing strength in its advertising and cloud businesses, driven by AI technologies and increased marketing budgets. However, the article suggests that the current stock price may already reflect these positive developments, leading to a “HOLD” recommendation for investors.
