Alphabet (GOOG) (GOOGL) was in focus on Tuesday as Loop Capital upgraded the tech giant, citing enthusiasm about its prospects in artificial intelligence.
“Our reservation regarding the sustainability of search revenue growth under AI cannibalization and transition risk is no longer a concern shared by investors,” Loop Capital analyst Rob Sanderson wrote in a note to clients. “While Google search results remain as healthy as ever (boosted by AI Overviews and AI Mode), traffic share to Gemini has doubled YoY and the position of Google Cloud and size of opportunity for its proprietary AI processors (TPUs) is becoming better appreciated. While our longer-term view on search market dynamics still has questions (and drives the majority of valuation) we are raising our target multiple to 20X EPS for Google core.”
Sanderson raises his rating on Alphabet to Buy from Hold and upped his price target to $320 from $260.
Delving deeper, Sanderson said that Google search results are as “healthy as ever,” as revenue accelerated to 15% growth in the third-quarter, the strongest level since the end of the COVID-19 pandemic-related boom.
“Continued strength is disproving concerns (or at least postponing concerns) that AI chatbots are encroaching on Google as a primary starting point for the information seeking journey of users.,” Sanderson added. “Strength is impressive considering Amazon pulled out of search ads in July and outsized growth in insurance as a category was expected to normalize against big comps.”
He also pointed out that Alphabet’s Gemini generative AI chatbot is gaining momentum, with third-parties stating it has doubled its share of traffic. Alphabet CEO Sundar Pichai recently disclosed that the Gemini app has more than 650M users.
Other notable strengths include growing momentum for Google Cloud, as its backlog has more doubled; and its tensor processing unit chips are gaining traction, with Anthropic (ANTHRO) gaining access to up to 1M chips next year, in a deal worth “tens of billions.”