AI was a key theme in 2023 and the main driver behind the strong performances seen across tech. When looking at the case of Alphabet (NASDAQ:GOOGL) for the coming year, it is the opportunity in AI that is set to take center stage again, says Bank of America analyst Justin Post.
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“We believe in 2024, continued recovery in the ad sector, ramping Shorts monetization, AI integrations boosting ROI (& ad spend) and strong cost management can drive upside to Street estimates,” said the analyst. “Key theme for 2024 is Google’s AI progress, and we expect a lot with Gemini and SGE (search generative experiences).”
Post’s comments come ahead of the Search giant’s Q4 earnings, which will be announced on Tuesday (January 30) once the market action comes to a halt. Ahead of the print, Post has raised his Search growth estimate to 14% (above consensus at 13%), which positions his total revenue forecast above the Street’s.
All in, Post is calling for Q4 revenues of $72.6 billion, which represents a 15% year-over-year increase, compared to Wall Street’s forecast of $71.1 billion. The analyst also highlights a post-October bounce-back in the advertising sector, with AI tools driving incremental ad spend and a shift in linear video spend toward YouTube. Despite increased expenses, including those related to the DTV deal, legal settlement, and YouTube costs, the analyst expects core operating margins to improve by 470 basis points from the same period a year ago, reaching 34.5%. In summary, Post’s EPS estimate remains at $1.63, exceeding the analysts’ anticipated $1.61.
Looking ahead to Q1, Post is calling for revenue/GAAP EPS of $66.2 billion/$1.49, respectively, while Wall Street has those figures at $65.4 billion/$1.49. “We expect search revenue growth of 12% y/y, decelerating 2pts on 4pt more difficult comp., though we see upside potential,” he summarized.
What does all this mean for investors? Post’s confidence is reflected in a raised price target of $175 (up from $166 previously), indicating potential for the stock to climb 15% higher in the coming months. Unsurprisingly, the analyst’s rating stays a Buy. (To watch Post’s track record, click here)
Most on the Street side with Post here. The stock claims a Strong Buy consensus rating, based on 16 Buys vs. 5 Holds. The average target is a more modest one; at $159.83, the figure suggests shares will gain ~5% in the year ahead. (See Alphabet stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
