Google’s AI Push: Will Earnings Soar This Quarter?

Analysts from Wedbush, J.P. Morgan, and Bank of America suggest that Google’s advancements in artificial intelligence (AI) are likely to enhance its earnings for the second quarter. Alphabet, Google’s parent company, is scheduled to release its earnings report on Tuesday.

Both Bank of America and Wedbush have increased their revenue forecasts for Google. Analysts Justin Post and Nitin Bansal from Bank of America believe that the integration of the Gemini platform into Google Cloud, along with AI overviews in Google Search, will lead to a rise in sales. They noted in a recent research note their optimism regarding the growing AI applications across Google’s ecosystem and anticipate that the wider rollout of these AI overviews will stimulate further engagement in the core Search business. This optimism continues despite earlier setbacks with AI overviews that resulted in some humorous internet commentary due to errors in output. Consequently, they have revised their price target for Google’s stock from $200 to $206.

In April, Google reported a significant profit surge of 60% for the first quarter, largely attributed to its AI initiatives. This prompted a spike in its stock price, elevating its market capitalization to over $2 trillion, joining the ranks of Apple, Microsoft, and Nvidia.

Google’s robust performance in the first quarter followed the launch of various new AI products, particularly within its Gemini AI offerings, showcased at the Google I/O developer conference. Notably, Google unveiled a future universal AI assistant that could interact via a user’s smart glasses, boasting that its latest Gemini AI model is 20% faster than the latest ChatGPT.

While Wedbush’s Dan Ives expressed more cautious optimism regarding AI Overviews compared to Post and Bansal, he did indicate that it could eventually benefit Search monetization. He also highlighted that AI is already positively impacting Google Cloud, estimating a 27% increase in Cloud revenue compared to last year.

J.P. Morgan analyst Doug Anmuth supported the favorable outlook, naming Google among the firm’s top technology stocks, alongside Uber and Amazon, noting his team’s enthusiasm for advancements in generative AI leading up to Alphabet’s earnings report. However, Raymond James analyst Josh Beck cautioned that, despite the current positive outlook for Google’s AI narrative, the long-term impact on sales remains uncertain.

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