BofA Securities Remains Bullish on Alphabet, Highlighting AI Strengths and Growth Opportunities
In a move that underscores continued confidence in Alphabet Inc.’s (GOOGL, GOOG) future, BofA Securities analyst Justin Post maintained a ‘Buy’ rating on the tech giant, setting a price target of $206. Post’s rationale centers on Alphabet’s dominant position in the AI landscape and its ability to leverage this technology across key businesses.
Post asserts that Alphabet’s AI expertise extends far beyond search and is poised to significantly impact YouTube and cloud services. He anticipates that Alphabet will benefit from a surge in mobile usage, video consumption, Google Play activity, and connected device engagement, including the automotive sector.
The analyst highlights Alphabet’s potential to trade at a premium valuation compared to its media peers, citing its technology leadership, robust margins, and impressive cash flow generation, which fuels share buybacks. The price target of $206 reflects a multiple of 22 times 2025 core Google GAAP earnings per share (EPS) plus cash per share. This multiple aligns with Alphabet’s historical valuation, considering expectations for double-digit revenue growth, expanding cloud margins, and the strategic advantage of powerful AI assets.
Post acknowledges the possibility of increased disclosures with the appointment of a new CFO, potentially during the December earnings call. He anticipates the upcoming third-quarter earnings report, scheduled for October 29 after market close, to reveal positive trends, including:
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Search Strength:
AI-driven monetization is likely to boost search revenue.*
AI Impact:
Positive commentary on AI overviews could lead to heightened user engagement or new advertising avenues.*
YouTube Growth:
Political spending and brand stabilization are expected to benefit YouTube’s revenue performance.*
Cloud Momentum:
Robust AI demand and constraints faced by competitors should contribute to cloud growth.There’s also a possibility of Alphabet exceeding expectations through further cost-cutting measures, building upon limited layoffs in 2024. Post emphasizes that despite the significance of its AI assets, Alphabet’s core valuation remains attractive, suggesting many concerns are already reflected in the stock price.
While Post does not foresee significant multiple expansion due to regulatory uncertainties, he anticipates share appreciation driven by earnings growth.
Earnings Estimates:
For the third quarter, Post predicts revenue of $72.7 billion, slightly below the Street consensus of $72.8 billion, and EPS of $1.86, surpassing the Street consensus of $1.85. He projects Search revenue of $49.4 billion (slightly above the Street’s $49.1 billion), YouTube revenue of $8.82 billion, and Cloud revenue of $10.9 billion, both aligning with Street estimates.
Current Stock Performance:
As of Tuesday’s close, GOOGL shares rose 0.64% to $166.01.
