To hear Sundar Pichai tell it, Alphabet (GOOG) has been in the artificial intelligence game for quite a while.
"We’ve been an AI-first company since 2016, pioneering many of the modern breakthroughs that power AI progress, for us and the industry," the search engine giant's CEO told analysts during the company's earnings call.
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Those AI efforts are paying off.
Alphabet reported first-quarter earnings of $1.89 per share, up from $1.17 a year ago, and handily beating the FactSet consensus of $1.51 per share. Revenue totaled $80.5 billion, up from $69.8 billion a year ago, surpassing FactSet's call for $78.74 in sales.
"It was a great quarter, led by strong performance from Search, YouTube and Cloud," Pichai said.
The company also approved its first-ever dividend and announced a $70 billion stock buyback.
"We have the best infrastructure for the AI era," Pichai said. "Building world-leading infrastructure is in our DNA, starting in our earliest days when we had to design purpose-built hardware to power Search."
Pichai said it took Google more than 15 years to reach $100 billion in annual revenue, while the company has gone from $100 billion to over $300 billion in annual revenue in the last six years.
The success has many analysts revisiting their Alphabet stock price outlooks.
Google CEO: 'Using AI to improve search'
"Of course, Search continues to power that, as you see in our Q1 results," he said. "But in addition, we expect YouTube overall and Cloud to exit 2024 at a combined annual run rate of over $100 billion."
Pichai said Alphabet is bringing AI overviews to the main Search page and "focusing on areas where gen AI can improve the search experience while also prioritizing traffic to websites and merchants."
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"We are encouraged that we are seeing an increase in search usage among people who use the new AI overviews as well as increased user satisfaction with the results," he said.
Analysts reacted to the earnings results by adjusting their stock price targets for Alphabet.
TheStreet Pro’s Chris Versace said that in response to Alphabet’s strong March quarter showing and prospects for accelerating revenue growth, “especially at YouTube and Cloud, and continued margin expansion despite investing in AI, we are boosting our GOOGL price target to $200 from $165.”
Versace noted that Google Cloud was up more than 28% from last year, a far quicker pace than the 25.7% year-over-year growth rate posted in the December quarter.
"This should quell concerns Google Cloud was not winning its share of cloud adoption, but it speaks to the company’s AI efforts as well," he said.
JPMorgan's Doug Anmuth raised the firm's price target on Alphabet to $200 from $165 and kept an overweight rating on the shares. The company reported strong first-quarter results across the board, the analyst tells investors in a research note.
The firm believes Alphabet "is beginning to go on the offensive" in artificial intelligence.
"The company is starting to bring AI responses into the main Search results page, and it is seeing an increase in Search engagement and satisfaction among AI users," he said.
"Management also expressed confidence that the shift to Generative AI in Search will expand the Search market opportunity, just as GOOGL saw with the shift to mobile & voice," the analyst added.
Anmuth said he believes Alphabet has perhaps the most diversified AI monetization path among leading AI players, with AI revenue potential in ads across Search and YouTube, Cloud, and subscriptions via Google One.
Analyst says 'Google is a beneficiary of AI'
'"Much like we saw with META the night before," he said, referring to Facebook parent Meta Platforms (META) , "to support large AI ambitions, GOOGL will increase its capital expenditure spending this year, we believe to around $50 billion."
Bank of America Securities analysts highlighted Alphabet's "rate triple-lindy returns," where YouTube, search, and cloud divisions beat Wall Street's expectations.
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The analysts raised their price target for Alphabet to $200 from $173 and reiterated their buy rating.
"The quarter beat expectations across all major business lines, supporting a narrative change: Google is a beneficiary of AI," BofA said in a research note. "Search is still not without disruption risk, but we remain constructive on Google infrastructure, data, and distribution advantages."
Needham raised the firm's price target on Alphabet to $210 from $160 and kept a buy rating on the shares.
The firm cited the company's “strong” first-quarter revenue, operating income of $25.5 billion exceeding the firm's view by 16%, and the company's $70 billion buyback and initiation of dividend.
Needham added that YouTube would be worth nearly $400 billion if it were spun off or separately traded.
TD Cowen analyst John Blackledge raised the firm's price target on Alphabet to $200 from $170 and kept a buy rating on the shares.
Blackledge told investors that Search, YouTube, and Cloud revenue came in above estimates while also increasing as the company sees broad momentum and adoption of burgeoning AI services.
Oppenheimer boosted the firm's price target on Alphabet to $205 from $185 and kept an outperform rating on the shares.
Alphabet's ad business is accelerating and driving operating leverage, despite significant investments in AI, the firm said.
All eyes are on Google I/O, the company's annual developer conference, scheduled for May 14, Oppenheimer said, and investors would likely be disappointed if the next-gen AI model isn't displayed at I/O.
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