On Monday, Phillip Securities raised its rating on shares of Alphabet Inc. (NASDAQ:GOOGL) from Accumulate to Buy, setting a new price target of $205, up from the previous $195. The upgrade follows Alphabet's second-quarter 2024 performance, which aligned with revenue expectations and exceeded profit after tax and minority interests (PATMI) forecasts due to higher operating leverage.
The firm's analysis indicates that Alphabet's first-half 2024 revenue and PATMI reached 48% and 51% of their full-year estimates, respectively. Advertising, a significant revenue stream for Alphabet, demonstrated an 11% year-over-year growth. The Cloud segment saw an even stronger acceleration, growing by 29% year-over-year, which the firm attributes to the company's artificial intelligence offerings.
Alphabet's operating margin expanded by 310 basis points year-over-year, reaching 32.4%. This increase was primarily due to lower operational expenditure growth coupled with enhanced AI-driven operational efficiencies, surpassing the peak margins seen during the pandemic period. As a result, Phillip Securities has maintained its revenue forecast for the full year but increased the PATMI estimate by 4%.
The firm's decision to upgrade Alphabet's stock rating is backed by the company's continued efforts to reduce costs and improve operational efficiency. The raised discounted cash flow (DCF) target price of $205 reflects unchanged weighted average cost of capital (WACC) and growth rate assumptions of 7.3% and 4.5%, respectively. Alphabet is recognized as the dominant force in digital advertising and a market leader in AI technology. It is also noted for trading at what Phillip Securities considers attractive valuations, currently at 18 times the fiscal year 2025 estimated earnings, which is below its 10-year average of 22 times.
In other recent news, NBCUniversal is set to employ artificial intelligence for its coverage of the Paris Olympics. The company, a subsidiary of Comcast (NASDAQ:CMCSA), in partnership with Google and Team USA, will use AI to recreate the voice of sportscaster Al Michaels for daily Olympic briefings, and to enhance Google Map images of Olympic venues. This move contrasts with Warner Bros. Discovery (NASDAQ:WBD)'s decision to stick with traditional methods for their European broadcasts.
Meanwhile, the U.S. Department of Justice has urged a federal appeals court to enforce a law requiring ByteDance, the parent company of TikTok, to divest its U.S. operations over national security concerns. The DOJ's stance is based on the potential risk of China accessing sensitive personal data of American users and manipulating content on the platform. Oral arguments on this legal challenge are scheduled for September 16.
In addition, a senior Russian lawmaker has accused Google of causing a significant slowdown in YouTube speeds in Russia. The lawmaker claims the slowdown is due to Google's failure to upgrade its infrastructure and its decision not to unblock Russian media channels. Google has yet to respond to these accusations.
Lastly, Asian stock markets rebounded recently, with investors eyeing a week full of corporate earnings reports and central bank meetings. Major tech firms like Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN), and Meta Platforms (NASDAQ:META) are scheduled to report earnings. Goldman Sachs (NYSE:GS) analysts suggest that the Federal Open Market Committee may indicate a higher likelihood of a rate cut in September. These are some of the latest developments in the business world.
InvestingPro Insights
Alphabet Inc. (NASDAQ:GOOGL) continues to demonstrate financial robustness, as evidenced by real-time data from InvestingPro. With a substantial market capitalization of $2.07 trillion, Alphabet stands as a tech behemoth. The company's P/E ratio is currently at 23.93, which, when adjusted for the last twelve months as of Q2 2024, shows a slightly more attractive figure at 22.52. This positions Alphabet favorably, especially when considering its PEG ratio of 0.49 during the same period, indicating potential for growth relative to its earnings.
Revenue growth remains a strong suit for Alphabet, with a 13.38% increase over the last twelve months as of Q2 2024. This consistent performance is further complemented by a robust operating income margin of 31.03%, showcasing Alphabet's efficiency in converting sales into profits. Furthermore, the company's gross profit margin stands at an impressive 57.64%, underscoring its ability to maintain profitability despite market fluctuations.
InvestingPro Tips highlight Alphabet's solid financial position, noting that the company holds more cash than debt on its balance sheet. Additionally, the stock's recent dip over the last week could present a buying opportunity, especially as 17 analysts have revised their earnings upwards for the upcoming period, signaling confidence in Alphabet's future performance. For investors looking to delve deeper into Alphabet's financials and strategic position, InvestingPro offers more tips that can be accessed at https://www.investing.com/pro/GOOGL. With the use of coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking a wealth of additional insights, including 11 more InvestingPro Tips related to Alphabet Inc.
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