Proactive Investors - Google parent Alphabet (NASDAQ:GOOGL) Inc (NASDAQ:GOOG)'s second quarter earnings are expected to benefit from improvements in AI search and headcount controls, analysts at the Bank of America (NYSE:BAC) believe.
They raised their price target on the stock to $206 from $200, representing upside from Alphabet’s current share price of about $182, and repeated their ‘Buy’ rating.
The bank’s analysts expect the tech giant’s revenue and earnings per share (EPS) to come in slightly ahead of the Wall Street consensus.
They see revenue of $70.9 billion and EPS of $1.91, compared to Street estimates of $70.6 billion and $1.84, respectively.
They also raised their Search estimates to 12% year-over-year growth or $47.9 billion, versus their earlier forecast of 11% growth.
They see an upside to Street Search estimates of $47.6 billion as their checks suggest AI integrations are driving higher usage and ad click-through rates, search revenue stability is being supported by an improving macro and AI-driven ad spend, and strength in YouTube from ramping Shorts monetization amid less than expected headwinds from Prime Video.
“We remain positive on growing AI integrations across Google's ecosystem and think a broader rollout of AI overviews will help drive higher activity in the core Search business,” they wrote.
“AI use poses a long-term competitive risk, but in the near-term, we think revenue upside from AI-driven monetization improvements will be a key Q2 takeaway.”
They see headcount grow to be flat year-over-year, and up 1,500 from the first quarter, with restructuring likely to help margins.
“With a focus on expense management, we think year-over-year margin growth in 2024 will be a bright spot and potential EPS upside driver,” they wrote.
The analysts highlighted several risks for Alphabet’s earnings, specifically Search coming in line with estimates on International softness and tough comparisons, increasing capital or operating expenses for AI investments and cautious commentary on growing regulatory headwinds.
“[There are] some 2H headline risks but remain constructive given AI benefits and our view that estimates can continue to move higher,” they concluded.
Alphabet will report its Q2 earnings after the stock market closes on Tuesday, July 23.