Wall Street analysts are revising their price targets for Alphabet following the Google parent company’s impressive third-quarter earnings report that exceeded expectations. The company’s shares saw significant gains in early Wednesday trading, though they remain below their peak levels from early July.
The tech giant demonstrated strong performance across multiple segments, with particularly notable growth in its cloud division. Google Cloud revenues experienced a 35% year-over-year increase, reaching approximately $11.35 billion, benefiting from increased enterprise customer spending on artificial intelligence. The company’s core advertising business also showed robust growth, with search revenue climbing 12.2% to $49.4 billion and YouTube ad revenue reaching $8.9 billion.
Alphabet’s substantial investments in artificial intelligence infrastructure were reflected in its capital expenditure, which reached $13 billion in the third quarter. The company’s new CFO, Anat Ashkenazi, indicated that similar spending levels are expected in the fourth quarter, with significant investments directed toward servers, data centers, and networking equipment.
Despite the heavy AI-related spending, improved profit margins helped ease investor concerns. The company’s operating margin expanded by 6 percentage points to 17%, suggesting that cost-cutting measures and efficiency initiatives are yielding positive results.
Various analysts have responded favorably to the results. Citigroup analyst Ronald Josey increased his price target to $216 per share, citing positive developments in Search and YouTube revenue growth. Wedbush analyst Dan Ives highlighted the efficiency gains from AI implementations, noting a 90% reduction in cost per query over the past 18 months, while raising his price target to $210.
D.A. Davidson analyst Gil Luria made a more substantial adjustment, increasing his target by $20 to $170 per share, emphasizing the successful integration of AI features across Google’s product suite. JMP Securities analyst Andrew Boone raised his target to $220, expressing confidence in Google’s position despite growing competition in the search space from chatbots and other platforms.
The company’s AI investments are showing promising results across its ecosystem, which serves two billion monthly active users through seven product groups. While some investors have worried about potential erosion in search revenues due to competition from AI-powered alternatives like ChatGPT and Apple Intelligence, the strong quarterly results have helped alleviate these concerns.
KeyBanc Capital Markets analyst Justin Patterson, who increased his price target to $215, noted that despite some regulatory risks, Alphabet continues to demonstrate solid growth in both Search and Cloud services, along with improved operational efficiencies.
The market responded positively to the earnings report, with Alphabet shares indicating a premarket trading price of $182.73, representing a 6.8% increase. This movement contributed to an approximately 11% gain over the past six months.
The earnings results suggest that Alphabet’s strategic focus on AI development, while costly, is beginning to show tangible benefits across its business segments. The company’s ability to maintain strong advertising revenue while simultaneously advancing its AI capabilities has reinforced investor confidence in its long-term strategy, despite ongoing competitive pressures and regulatory challenges in the technology sector.