Google’s advancements in artificial intelligence are creating a favorable outlook for its second-quarter earnings, as suggested by analysts from Wedbush, J.P. Morgan, and Bank of America. Alphabet, Google’s parent company, is scheduled to announce its earnings this evening.
Analysts from Bank of America, including Justin Post and Nitin Bansal, have revised their revenue forecasts for Google. They believe that the integration of the AI tool Gemini into Google Cloud and AI Overviews in Search will enhance sales. In a recent research note, they expressed optimism about the growing use of AI across Google’s ecosystem, indicating that a wider implementation of AI Overviews could lead to increased activity within its core Search business. Their price target for Google’s stock has been raised from $200 to $206, despite some initial difficulties with the AI Overviews tool, which faced criticism for generating errors.
In April, Google reported a remarkable 60% rise in profits for the first quarter, attributing part of this success to AI. This significant performance resulted in a surge in its stock price, enabling the company to surpass a market capitalization of $2 trillion, joining tech giants like Apple, Microsoft, and Nvidia.
The positive results in the first quarter followed a series of new AI product launches, particularly those related to the Gemini AI initiative. Notable advancements were revealed during the recent Google I/O developer conference, including a universal AI assistant designed to interact through smart glasses. Google asserts that its latest Gemini AI operates 20% faster than the latest iteration of ChatGPT.
While Wedbush’s Dan Ives was more cautious regarding the potential of AI Overviews, he noted that it could eventually contribute to improved monetization of the Search business. Additionally, he highlighted that AI is already positively impacting Google Cloud, and he expects a 27% increase in Cloud revenue year-over-year.
J.P. Morgan’s Doug Anmuth echoed the optimism, identifying Google as one of the firm’s top tech stock picks alongside Uber and Amazon, praising the progress made in generative AI ahead of Alphabet’s upcoming earnings report.
However, Raymond James analyst Josh Beck cautioned that although the current narrative surrounding AI’s impact on Google appears favorable, the long-term effects on sales are still uncertain.