Google Parent Alphabet Inc reported strong revenue growth and AI breakthroughs in its fourth-quarter financial results, but analysts are questioning the impact of its capital expenditure (capex). The company’s revenue increased by 13% year-over-year to $86.31 billion, surpassing the consensus estimate of $85.33 billion. Earnings per share (EPS) also beat analyst estimates, coming in at $1.64 compared to the expected $1.59.
Analysts have reacted to the results with mixed opinions. KeyBanc analyst Justin Patterson maintained an Overweight rating on Alphabet stock and set a price target of $165. He praised the company’s revenue and EPS performance, which exceeded his expectations. However, he noted that while the Cloud segment showed significant strength and generative AI made breakthroughs, the Search/YouTube division fell slightly short of expectations. Patterson highlighted that the capex figures surprised investors, leading to debates about the size and magnitude of the investment cycle. Despite these concerns, he cited the early returns from AI and projected strong EPS growth in the coming years.
On the other hand, Needham analyst Laura Martin reiterated a Buy rating with a price target of $160. While she acknowledged that the revenue beat her estimates, she pointed out that the EPS fell short. Martin also raised concerns about the company’s capex, which reached $11 billion. Nevertheless, she sees Alphabet as a top large-cap stock pick for 2024 due to factors such as a robust macro backdrop, record political ad spending, data advantages, and generative AI.
William Blair analyst Ralph Schackart maintained an Outperform rating on Alphabet stock. He highlighted disappointing advertising growth but acknowledged the traction gained by the Cloud segment. Schackart expressed concerns about the significant capex projected for 2024, which he believes may disappoint investors. Despite this, he noted that Google’s product innovations and effective use of AI technologies have resulted in a positive reevaluation.
Alphabet’s shares saw a 6.20% decline, trading at $143.56 following the release of the quarterly results. However, analysts remain optimistic about the company’s future, with an average 1-year price target of $163.83, implying a potential upside of approximately 15.47%. Although differing assumptions lead to varying price targets, no analysts have issued bearish recommendations for Alphabet.
As the news of Alphabet’s strong revenue growth and AI breakthroughs spreads, analysts have divergent opinions about the impact of the company’s capex on future performance. While some analysts express concern, others remain optimistic about Alphabet’s prospects. The market response so far has been slightly negative, with a decline in the company’s stock price. Nevertheless, analysts maintain overall confidence in Alphabet’s long-term potential, as reflected in their price targets and recommendations.
