Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) got off from its slump last year despite facing post-earnings challenges. Q4 ad sales rose to $65.5 billion, with overall revenue coming in at $86.3 billion. Despite lower-than-expected ad revenues, Alphabet’s perception as an AI stock remains. Thus, it’s no surprise to see many investors and GOOG stock fans predict the stock to surpass $300 in five years, offering substantial potential returns over the medium term.
Let’s dive into Alphabet’s recent earnings report, and what we can glean about whether this is a top ‘Magnificent 7’ stock to buy right now.
Recent Earnings Report
After reporting its Q4 results, GOOG stock dipped slightly. The company did emphasize its generative AI capabilities, subscriptions growth, and cloud services as key focal areas. Additionally, advertising revenue increased by 11%, but missed estimates. Thus, many were left wondering if this stock’s valuation may be too hefty for its current growth outlook.
That said, CEO Sundar Pichai highlighted the company’s new AI model, Gemini, which has the potential to enhance its core product portfolio and increase its profits. But despite Alphabet’s AI focus, advertising remains its core. This segment saw Q4 revenue of $66B, with ads accounting for 76% of total revenue. Google Search and YouTube TV contributed significantly to the company’s overall quarterly results.
Apart from advertising, Google Cloud stood out, with Q4 revenue hitting $9.2B, a 26% year-over-year surge. CEO Sundar Pichai highlighted the company’s AI advancements, countering concerns over competition from Microsoft-backed ChatGPT. If Alphabet can properly integrate AI into its core business segments, all bets are off in terms of how high the company’s growth rate could potentially go from here.
The company generated nearly $8 billion in free cash flow this past quarter, partly affected by increased income tax expenses. This company’s robust balance sheet empowers Alphabet to pursue strategic investments and allows this stock to remain one of the top Mag 7 picks for long-term investors.
New Analyst Price Targets
James Cordwell, a Redburn Atlantic analyst, raised Alphabet’s price target to $165 from $150, maintaining a buy rating. Despite robust results, he noted Search growth met expectations, easing his concerns.
Additionally, Jefferies increased Alphabet’s price target to $175 from $170, maintaining a buy rating. This firm noted robust ad demand fueling Search and YouTube growth, despite revenue falling slightly short of investor expectations. Cloud growth improved but lags behind Microsoft’s Azure. Jefferies anticipates a positive 2024 driven by a robust ad market, AI-boosting Cloud, and YouTube.
BMO Capital’s Brian Pitz increased Alphabet’s price target to $178 from $170, maintaining an outperform rating. He highlighted potential growth in GenAl from infrastructure, foundational models, and apps. BMO raised its 2024 earnings forecast to $6.62 per share and its 2025 target to $8.06 per share.
Wells Fargo adjusted Alphabet’s price target to $141 from $148, maintaining an equal weight rating. Analysts attributed tepid fourth-quarter search growth to Alphabet-specific factors, offsetting a favorable cost outlook. The company revised operating loss and free cash flow estimates downward, foreseeing challenges with decelerating search growth and increased capital expenditure.
Get a Pocketful of GOOG Stock Now
Alphabet’s Q4 results underscore the importance of focusing on its long-term trajectory. While facing heightened AI competition and some financial declines, its robust ad business and cloud growth signal resilience. With the launch of Gemini, a powerful AI tool, Google Cloud has a promising revenue stream. This is the key driver I think investors will remain focused on, at least for the remainder of 2024.
Additionally, due to ample resources, Alphabet can sustain and enhance its competitive edge, promising long-term shareholder value. Despite recent fluctuations, investors should consider buying the stock.
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 InvestorPlace.com Publishing Guidelines.