The GOOG Gold Rush: Why Analysts are Betting Big on Alphabet

Stocks to buy

Alphabet (NASDAQ:GOOG) is one of the top growth stocks most investors either own (directly or via an index fund) or wish they had owned in recent years. This is a company that’s made impressive advancements in AI technology and is at the forefront of other high-growth businesses. Of course, the company’s core Google search business drives incredible cash flow growth over the long term, something many believe will be a staple of the future of GOOG stock for years to come.

This company’s most recent Q1 and Q2 earnings showed modest year-over-year revenue growth. Google Search propelled these results higher, but there are some doubts being raised by even the most ardent bulls around whether this stock can continue to rise over the long term. Strength in the digital advertising market, for one, remains a thorn in the side of GOOG stock and its investors.

That said, I think this is a company with a compelling valuation and relatively impressive growth prospects. Accordingly, let’s dive into why GOOG stock remains a buy, and investors should find a spot in their portfolio for this name right now.

Analysts Remain Bullish on GOOG

Scott Devitt, Wedbush’s Managing Director, acknowledges bond yield challenges for big tech but stays optimistic about firms leveraging generative AI, like Alphabet. He believes they remain strong in the current AI growth cycle. Devitt singles out Alphabet as a generative AI beneficiary. He recently cited YouTube’s new AI-driven features for content creators as a prime example.

Justin Patterson at Business Insider upgraded Alphabet to Overweight, raising the price target from $145 to $155. He predicts Q3 outperformance due to strong Search trends, estimating $43.5 billion in Search revenue, slightly above Street estimates, resulting in a 2% increase in earnings per share.

Patterson remains optimistic about Q4, projecting a 13% year-over-year overall revenue growth, driven by robust Search and YouTube performance.

These analysts all retain bullish stances on GOOG stock and represent the consensus, with an average $149 price target for the stock and a strong buy rating overall.

Alphabet Has the Advantage

Alphabet’s revenue rose sharply in 2021, surging 41.2%. However, this growth rate has (understandably) slowed to 9.8% in 2022 and 4.9% in H1 2023. Shareholders may not be accustomed to single-digit growth. Additionally, the digital advertising market is more cyclical than expected. Uncertain economic conditions lead to reduced ad spending. Alphabet, as an industry leader, is also affected.

However, Alphabet’s strong competitive advantages shine when we consider its extensive product range, particularly Search, Cloud, and YouTube. The vast data it accumulates, despite privacy concerns, enhances its services and secures its leadership. Additionally, Alphabet enjoys robust network effects, making it challenging for competitors to match Google’s search capabilities and YouTube’s reach.

In term of financials, Alphabet’s Q2 showed a 7% revenue increase and a 12.5% surge in net income year-over-year. I think Q3 is likely to provide even higher revenue growth of nearly 10%. With $118 billion in cash and relatively low debt, Alphabet is well-prepared for rising interest rates and potential acquisitions.

Alphabet is primed to benefit from ad spending recovery, its AI progress, and robust cloud business, making GOOG stock a strong buy. Indeed, that’s not only my rating but that of the analysts, for good reason.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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