Over the past 12 months, Alphabet (NASDAQ:GOOGL) has been at the forefront of development in the GenAI space. That has been done by introducing new and enhanced GenAI tools, such as Gemini, its multi-modal AI model. Gemini is the driving force behind various consumer and enterprise products, which were extensively covered at the company’s recent Google I/O event, including Gemini Live, Veo, Ask Photos, and more.
Wolfe Research analyst Shweta Khajuria notes that while Alphabet has been a leader in the AI space for most of the past decade, she points out that the bearish argument revolves around the “uncertain monetization models and cost implications” of the wider rollout of GenAI across different products. The argument also factors in the increasing competition from Microsoft/OpenAI, with the latter rumored to be discussing a partnership with Apple.
Despite these concerns, Khajuria believes the bullish perspective remains strong. “We agree with the Bullish view that Alphabet is well-positioned to continue its execution of broader GenAI rollout across its surface to drive meaningful top-line benefits,” Khajuria said. “Additionally, we think that while CapEx is likely to grow to support these workloads, the ROI is measurable and the spend is warranted to establish/maintain leadership position.”
Ad revenue growth is another hot topic amongst investors, which after significant post-COVID growth slowed to a high single-digit percentage in recent years. Bears are concerned about achieving double-digit ad revenue growth in the near-to medium-term, especially with muted YouTube growth in FY22/23 amid macro challenges and competition from META, TikTok, and other platforms limiting Shorts growth. On the other hand, bulls argue that Alphabet’s substantial investments in GenAI will spur growth in Search and YouTube, leveraging secular trends in video and retail media.
Once again, Khajuria sides with the optimists. “We agree with the Bulls and believe that Alphabet should be able to accelerate ad revenue growth to the DD% range in the N/MT driven by Gen AI contributions as well as secular growth in Video/Retail Media (YT),” the analyst explained. “While NT questions remain around GenAI competition and path to meaningful monetization, we have confidence in Alphabet’s ability to execute and deliver top-line acceleration.”
Quantifying that bullish stance, Khajuria has initiated coverage of GOOGL with an Outperform (i.e., Buy) rating, backed by a Street-high $240 price target. The figure implies shares will post growth of 35% in the year ahead. (To watch Khajuria’s track record, click here)
Most other Street analysts also take a bullish view; based on a mix of 33 Buys against 6 Holds, the stock claims a Strong Buy consensus rating. The average price target currently stands at $202.89, suggesting potential upside of 14% over the 12-month timeframe. (See GOOGL stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
