Google’s AI Revolution: Will Earnings Soar?

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Analysts from Wedbush, J.P. Morgan, and Bank of America suggest that Google’s AI advancements are poised to enhance the company’s second-quarter earnings. Alphabet, Google’s parent company, is anticipated to release its earnings report after market hours on Tuesday.

Bank of America analysts Justin Post and Nitin Bansal have raised their revenue forecasts for Google, attributing this optimism to the integration of the Gemini AI into Google Cloud and AI Overviews in Google Search. In a research note published late last week, they expressed confidence that the broader rollout of AI features would stimulate increased activity within the core Search business, despite minor issues observed during the initial rollout of AI Overviews, which faced criticism for inaccuracies. They adjusted their price target for Google’s stock upwards from $200 to $206.

In April, Google announced a significant 60% profit surge in the first quarter, driven in part by its AI initiatives. This strong performance led to a rise in the company’s stock price, pushing its market capitalization above $2 trillion, joining the ranks of tech giants like Apple, Microsoft, and Nvidia.

The positive results in the first quarter followed a series of AI product launches as part of Google’s Gemini offerings. Recent announcements made at the Google I/O developer conference included an advanced AI assistant capable of visual and verbal interactions via smart glasses. Google claims that its latest Gemini AI technology is 20% faster than the most recent version of ChatGPT.

Dan Ives from Wedbush was somewhat more cautious regarding the impact of AI Overviews compared to Post and Bansal but suggested that this feature could become beneficial for Search monetization over time. He noted that AI is already contributing favorably to Google Cloud’s performance, predicting a 27% rise in Cloud revenue compared to the previous year.

Doug Anmuth from J.P. Morgan shared a similar optimistic outlook, recently including Google among his firm’s top tech stocks, alongside Uber and Amazon, citing positive developments in generative AI ahead of Alphabet’s earnings announcement.

On the other hand, Josh Beck from Raymond James cautioned that while the current narrative surrounding AI at Google appears promising, the long-term impact on the company’s sales remains uncertain.

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