Wall Street swooning over Google’s AI prowess and possibilities after earnings report

Both share classes of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) surged as much as 7% in open market trading on Wednesday before midday after the search and ad giant easily topped profit and revenue expectations, driven by better-than-expected growth in subscriptions/platforms/devices and Google Cloud.

The company on Tuesday after the bell posted Q3 GAAP EPS of $2.12, beating estimates by $0.27, on revenue of $88.27B, which was up nearly 15% from last year and ahead of consensus by $2.05B.

Several Wall Street analysts, while maintaining rating and increasing price target, weighed in with their thoughts on the company’s report and key takeaways.

Needham: (reiterated BUY and PT at $210; +24% upside) The research firm noted that GenAI is driving more searches, and the tech giant is closing the monetization gap between GenAI queries and classic Search. They think Google Search will benefit from GenAI, and the company’s strategic position benefits from large data flows, vertical integration, and hundreds of AI engineers, among other things.

“GOOGL’s search dominance on desktop and mobile and YouTube give it best-in-class 1st-party data, which becomes more valuable over time. GenAI is a key competitive battleground for Big Tech, and GOOGL leads the race, in our view.”

Citi: (reiterated BUY and PT at $216; +27% upside) The research firm said it was incrementally positive on shares after results and pointed out that Google Search & YouTube revenue growth highlighted continued advertiser adoption of its monetization tools as query growth evolves with AI Overviews and broader GenAI search tools.

“While accelerating Google Cloud revenue growth of +35% Y/Y underscores strengthening demand for Google’s enterprise AI tools and greater cloud demand overall, the net result is expanding margins, a trend that we believe can continue. And while we’re watching Capex spend into 2025, with all seven of its 2B+ MAU products (now including Google Maps) leveraging Gemini, we believe Google’s broader AI upgrades across its portfolio remain early days, and we look for improving integrations and benefits going forward. To be clear, regulatory overhangs remain as GenAI competition increases, but we are encouraged with 3Q results overall.”

Evercore ISI: (reiterated Outperform, PT hiked to $205; +21% upside) The research firm thinks the company is making “a compelling case for continued leadership” in the AI era.

“We think there’s a real AI product cycle at work in the Google Search and Cloud story, and we see incremental evidence of this product cycle at work in the Q3 print, as GOOGL’s infrastructure, research teams, and distribution scale/breadth advantages allow the company to bend the AI cost curve, expand AI touchpoints, and ramp up monetization faster than competitors.”

Morgan Stanley: (reiterated Overweight, PT hiked to $205; +21% upside) MS analysts think ads in Overviews are monetizing at a similar rate as traditional search, which should allay some investor concerns that the transition toward generative AI search could lead to a monetization headwind for now.

They noted that the company has showcased how it is using GenAI to become more efficient and productive internally and improve cost to serve AI Overview queries. The extent to which Overviews drives incremental monetizable behavior should lead to incremental revenue, MS analysts said.

Jefferies: (reiterated BUY, PT hiked to $235; +38% upside) The research firm observed that the company’s core search business is still attracting incremental ad dollars in the shift to digital and mobile and noted that YouTube is the best-positioned platform to take advantage of a sizable online video opportunity.

“GOOGL delivered an all-around winner, with all segment revs beating consensus… AI feels increasingly like a well-managed tailwind, improving the effectiveness of ads, drawing in Cloud customers, and driving internal efficiencies. Outlook appears positive, with consumers, advertisers, and enterprises continuing to spend… AI momentum continues to build across GCP AI infra and Gen AI solutions, with GOOGL noting its AI portfolio is helping it win new and larger deals and drive 30% deeper product adoption within existing customers.”

Wedbush: (reiterated Outperform and hiked PT to $210; +24% upside) “Alphabet delivered strong Q3 results with better-than-expected advertising and cloud growth. Google continues to integrate Gemini into its core services, and we are beginning to see tangible results across consumer and enterprise products. Google has been able to reduce the cost per query by over 90% in the last 18 months. We continue to believe the structural risks to Google Search’s dominance are overblown, and we are optimistic on the longer-term prospects of the search business as Google manages through this period of transition.”

Emma Bakken (Senior Business Analyst at Direxion) “Most notably, the company’s cloud division revenue was impressive, reported at $11.35 billion, which is up almost 35% from last year… Growth in Google search was another positive for the company, up 12.3% from a year ago, and their YouTube segment also came in better than expected with ad revenue up quarter-over-quarter. While worries about near-term profitability and revenue were mostly resolved, investors may still be concerned about the longer-term in terms of spend and operating-margin compression due to factors like the regulatory environment, increased competition, etc.”