Alphabet Stock Drops on Disappointing Advertising Revenue

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Shares of Google parent company Alphabet dropped 5.6% in premarket trading on Wednesday after investors reacted to disappointing fourth-quarter advertising revenue. While the company’s earnings and revenue exceeded Wall Street expectations, advertising sales fell short of the consensus call.

Analysts Remain Bullish on Alphabet’s AI Opportunities

Despite the setback, analysts remain optimistic about Alphabet’s artificial intelligence (AI) opportunities and valuation. Citi analyst Ronald Josey stated that although there are positive growth prospects for GenAI tools in Search and Ads, fourth-quarter results indicate a deceleration in Search growth. However, he also noted that newer GenAI ad tools could potentially improve Google’s Search revenue trajectory.

Positive Outlook for Alphabet

Ronald Josey increased his price target on Alphabet stock from $153 to $168 and maintained his Buy rating. He cited improving trends across Google Cloud, YouTube, and subscriptions, as well as a strengthening advertising environment, as reasons for his positive outlook.

Wall Street Analysts Remain Bullish

Despite the disappointment, the majority of Wall Street analysts covering Alphabet stock still hold a bullish view. Out of the 59 analysts, 48 have Buy ratings, while 11 have Hold ratings according to FactSet. Sell ratings are currently absent.

Guggenheim Securities Analyst Raises Price Target for Alphabet

Guggenheim Securities analyst Michael Morris has increased his price target for Alphabet, setting it at $170, up from $150. In addition to raising the price target, Morris has maintained his Buy rating for the tech giant. According to a research note written by Morris, Alphabet’s valuation on forward earnings is considered a discount compared to its peers in the “Mag 7” group. Morris believes that this presents a valuable opportunity for investors, given the numerous growth prospects in both the consumer and enterprise sectors.

Alphabet is a member of the Magnificent Seven, a prestigious group of tech-focused stocks. This group includes other well-known companies such as, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Known for their impressive performance in the market, these companies have gained recognition for their substantial market capitalizations. Currently, Alphabet’s shares are trading at 22.3 times forward earnings, while Apple’s shares are valued at 27.8 times forward earnings. Nvidia stands at 29.8 times, and Tesla reaches an impressive 59.2 times valuation.

The future of AI continues to generate excitement among investors. Youssef Squali, an analyst at Truist Securities, expressed optimism about Alphabet’s AI capabilities following the company’s earnings report. Squali notes that Alphabet remains at the forefront of the AI race, a factor that he believes will contribute to sustained double-digit growth in both revenue and profitability. Squali rates Alphabet stock as a Buy and sets the price target at $158.

One of Google’s recent advancements in the field of AI is the launch of Gemini in December. Gemini represents the company’s most advanced AI software model to date, showcasing Alphabet’s commitment to innovation and technological progress.

While Alphabet seems to be thriving, other tech stocks experienced a decline in premarket trading on Wednesday. Microsoft’s stock dropped by 0.3%, Apple’s stock decreased by 0.1%, and Amazon’s stock recorded a 1.6% drop.

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