Google’s AI Revolution: Will Earnings Soar in Q2?

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Analysts from Wedbush, J.P. Morgan, and Bank of America suggest that Google’s advancements in artificial intelligence are likely to positively impact its earnings for the second quarter. Alphabet, Google’s parent company, is scheduled to release its earnings report Tuesday after the market closes.

Bank of America analysts Justin Post and Nitin Bansal have upgraded their revenue forecasts for Google, attributing the expected growth to the integration of the Gemini AI platform into Google Cloud and the new AI Overviews in Google Search. They maintain an optimistic outlook on the increasing integration of AI throughout Google’s services and believe that wider adoption of AI Overviews will enhance engagement in the Search segment. This comes despite initial challenges faced during the rollout, which resulted in some embarrassing mistakes from the tool. Following these updates, Post and Bansal have raised their price target for Google stock from $200 to $206.

In April, Google reported a remarkable 60% profit increase in the first quarter, significantly driven by AI developments, which in turn elevated its stock price and market capitalization above $2 trillion, placing it alongside tech giants Apple, Microsoft, and Nvidia.

The strong performance in the first quarter was bolstered by a series of new AI product launches under the Gemini AI branding. At the Google I/O developer conference, the company showcased a futuristic universal AI assistant capable of interacting through smart glasses. Google asserts that its latest Gemini AI model operates 20% faster than the latest version of ChatGPT.

Dan Ives from Wedbush expressed a slightly more cautious view regarding the AI Overviews, suggesting that while they might eventually support Search monetization, the impact may not be immediate. However, he noted that AI is already contributing positively to Google Cloud, anticipating a 27% revenue increase from Cloud services compared to last year, aligning with broader analyst sentiment.

Doug Anmuth of J.P. Morgan shared a positive outlook, naming Google as one of the top tech stocks alongside Uber and Amazon. He expressed optimism regarding the developments in Generative AI leading up to Alphabet’s upcoming earnings report.

Despite the generally favorable sentiment around Google’s AI initiatives, Raymond James analyst Josh Beck cautioned that the long-term impact of AI on sales remains uncertain.

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