Google’s AI Revolution: Earnings on the Horizon?

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Google’s anticipated advancements in artificial intelligence (AI) are likely to enhance its earnings for the second quarter, as noted by analysts from Wedbush, J.P. Morgan, and Bank of America. The parent company, Alphabet, is expected to release its earnings report following market closure on Tuesday.

In light of these developments, both Bank of America and Wedbush have upgraded their revenue forecasts for Google. Analysts Justin Post and Nitin Bansal at Bank of America believe that the company’s integration of Gemini into Google Cloud and the introduction of AI Overviews in Google Search will positively impact sales.

They expressed optimism regarding the growing AI integrations within Google’s ecosystem and anticipate that a wider deployment of AI overviews will increase user engagement in the core Search segment, despite some initial challenges during the rollout, which led to various internet jokes about the tool’s errors. The analysts have adjusted their price target for Google’s stock from $200 to $206.

Earlier this year, Google reported a significant 60% profit increase in the first quarter, driven in part by AI innovations. This surge in profitability propelled its stock price and elevated the company’s market valuation beyond $2 trillion, placing it alongside tech giants Apple, Microsoft, and Nvidia.

During its recent developer conference, Google I/O, the company showcased exciting new features of its Gemini AI suite, including a futuristic universal AI assistant capable of interacting through smart glasses. Google claims that its latest Gemini AI operates 20% faster than the newest version of ChatGPT.

While Wedbush analyst Dan Ives expressed some caution about the potential of AI Overviews, noting that they might provide support for Search monetization in the long run, he acknowledged that AI is already benefiting Google Cloud services. Ives, along with many analysts on Wall Street, predicts a 27% rise in Cloud revenue compared to last year.

J.P. Morgan analyst Doug Anmuth also shared a positive outlook, identifying Google as one of his firm’s top technology stock picks alongside Uber and Amazon. He expressed enthusiasm for the progress of generative AI ahead of Alphabet’s forthcoming earnings report.

However, Raymond James analyst Josh Beck cautioned that while the current narrative surrounding AI’s impact on Google is optimistic, the long-term effects on sales remain uncertain.

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