By Emily Bary
Google parent puts ‘doomsday AI search share-loss fears’ to bed with latest earnings report
Alphabet Inc.’s stock could see its second-best single-day performance in history on Friday, following an earnings report that drew effusive praise from analysts.
Simply put, the company was “perfect,” in the view of Bernstein analyst Mark Shmulik.
The Google parent company faced an interesting setup headed into the report. On one hand, its shares were near all-time highs. But at the same time, Alphabet (GOOG) (GOOGL) has spent the past year and a half drawing investor doubts over factors like its artificial-intelligence positioning and the future of its core search business in a world where AI queries come to dominate, wrote Shmulik, who has a market-perform rating on the stock.
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He noted that the company’s results were buoyed by accelerating growth across three major areas: search, YouTube advertising and the cloud. And Alphabet may have put “doomsday AI search share-loss fears” to rest as it seems that those using its generative-AI-search product end up searching more.
Alphabet shares were up 11.3% in Friday’s premarket trading. Such an advance, if it holds through the regular-session close, would be the stock’s second-best single-day percentage rally on record, behind only a 16.1% gain seen July 17, 2015.
The company is on track to reach a $2 trillion market capitalization for the first time if current gains hold. It would be the fourth U.S. company to achieve the milestone, after Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Nvidia Corp. (NVDA) If Alphabet achieves the mark Friday, it would be doing so 947 trading days after hitting $1 trillion.
MoffettNathanson analyst Michael Nathanson also highlighted the company’s improved AI narrative.
“Alphabet has evidently realigned its strategic direction on AI,” he wrote.
Nathanson sees “a clearer pathway to monetization and cost optimization in AI initiatives,” demonstrated in part by “real momentum” in Google Cloud, which grew 28% in the quarter.
The company’s commentary on search patterns for those using the generative-AI-search option “further reinforces our confidence in Alphabet’s positioning to lead the conversational search-engine race, leveraging its established dominance in Search,” Nathanson added.
That Alphabet’s search business increased revenue by 14% in the latest quarter was more proof of it “continuously defying the law of large numbers,” he wrote, while sticking with his buy rating and boosting his price target to $185 from $175.
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Wedbush’s Scott Devitt titled his note to clients: “Rumors of Alphabet’s Demise Greatly Exaggerated.”
“We think 1Q results further validate Google’s position as a leading AI beneficiary as management commentary directly addressed the structural risks of generative AI on the Search business,” he wrote.
Meanwhile, on the cloud side of the business, AI is driving increasing contributions to growth, Devitt noted, as he maintained an outperform rating on the stock but boosted his target price to $205 from $175.