Alphabet investors recently experienced some volatility as the company reported lower-than-expected YouTube advertising revenue, causing shares to fall about 5%. In response, Alphabet plans to boost capital expenditures to meet rising artificial intelligence demand, with Chief Financial Officer Ruth Porat announcing a $12 billion quarterly investment in AI. CEO Sundar Pichai emphasized the importance of investing in AI, stating that the risk of underinvesting is greater than the risk of overinvesting. Despite the long-term bullish outlook on Alphabet’s AI prospects, Wall Street is anticipating some choppiness in the near term, especially due to tough advertising comparisons in the Asia-Pacific region.
Analysts have expressed mixed views on Alphabet’s recent performance and investment plans. Some, like Bernstein’s Mark Shmulik, have maintained a neutral market perform rating, noting that Google is treading water. Jefferies analyst Brent Thill sees Alphabet as a leader in AI but anticipates challenges in the advertising industry. Deutsche Bank analyst Benjamin Black has adjusted revenue outlooks to reflect the complex situation. Barclays analyst Ross Sandler predicts margin pressure for Alphabet due to depreciation and hardware spending. Despite the cautious sentiments, some analysts, such as Deepwater Asset Management’s Gene Munster, view Alphabet’s increased spending as a strategic move to “future proof” its business.
Looking ahead, analysts like Goldman Sachs’ Eric Sheridan and Bank of America’s Justin Post believe that Alphabet is well-positioned to navigate the current and future computing landscape. They see Alphabet as a net AI beneficiary and expect continued growth in search and YouTube. Truist’s Youssef Squali also sees positive signs of engagement trends from these AI investments. Citi’s Ronald Josey maintained a buy rating on Alphabet, citing strong search results and potential for margin expansion. Despite the recent challenges, Josey boosted his price target for Alphabet, indicating confidence in the company’s long-term prospects.
While Alphabet may face short-term uncertainties and margin pressures, investors should consider the company’s strategic investments in AI and the potential for future growth. The AI investments may not yield immediate returns, but they could position Alphabet for long-term success in the rapidly evolving tech industry. With a focus on innovative technologies like language models and advanced silicon graphics processing units, Alphabet aims to stay ahead of the competition and capitalize on emerging opportunities in AI. Investors should weigh the short-term challenges against the company’s long-term vision and potential for sustained growth.