On Thursday, Cantor Fitzgerald initiated coverage on shares of Alphabet Inc. (NASDAQ:GOOGL) with a Neutral rating and a price target of $190. The firm's analysis suggests a 16% implied upside to the current trading value. The decision reflects a cautious outlook for the tech giant's near-term financial performance, despite the company's strong position in the technology, media, and telecommunications (TMT) sector.
The firm acknowledges Alphabet's potential for double-digit growth in the coming fiscal years, driven by its core search business. However, they also note several challenges that could limit the stock's appreciation. Recent regulatory issues present medium to long-term uncertainties, and the search user experience (UX) is in a state of transformation due to costly artificial intelligence deployments.
Further concerns for Alphabet include the anticipated headwinds from rising infrastructure costs and an increase in headcount, which are expected to impact earnings per share (EPS) growth for the fiscal year 2025. According to the firm, these factors are likely to contribute to Alphabet's shares trading at a discount compared to its mega-cap peers.
Currently, Alphabet's shares are valued at 19 times the estimated EPS for the fiscal year 2025, which the firm believes reflects the market's view on the ongoing regulatory and AI-related uncertainties. The firm's stance suggests they expect Alphabet to maintain its market position but sees limited potential for significant stock price growth in the next 12 to 18 months.
In other recent news, Alphabet Inc. has been the subject of several developments. Evercore ISI has maintained an Outperform rating for Alphabet, citing the company's strong position in the search engine market and the positive reception of its AI search products.
Meanwhile, Barclays has reaffirmed its Overweight rating, suggesting that the upcoming Google ad tech monopoly trial may have limited revenue effects. Morgan Stanley has adjusted its price target for Alphabet to $190, maintaining an Overweight rating despite potential regulatory issues. Needham continues to uphold a Buy rating for Alphabet amidst ongoing antitrust discussions.
In terms of expansion, Alphabet's subsidiary, Google, is considering establishing a significant data center in Vietnam, a first for a major U.S. tech firm in the Southeast Asian country. This decision is driven by the growing client base for Google's cloud services in Vietnam and the country's rapidly expanding digital economy. Alphabet-supported AI startups OpenAI and Anthropic have entered into research agreements with the U.S. government, marking a significant step in the oversight of AI technologies. These partnerships aim to assess the capabilities and potential risks of their AI models.
Lastly, in California, a controversial AI safety bill, SB 1047, has cleared the legislature and now awaits Governor Gavin Newsom's signature.
InvestingPro Insights
In the context of Cantor Fitzgerald's neutral stance on Alphabet Inc., it's worth considering key financial metrics and insights from InvestingPro. Alphabet holds a substantial market capitalization of $1.93 trillion, indicating its significant presence in the market. The company's P/E ratio stands at 22.44, which, when adjusted for the last twelve months as of Q2 2024, shows a slight decrease to 21.32. This suggests a relatively attractive valuation when paired with near-term earnings growth.
Moreover, Alphabet's revenue has grown by 13.38% in the last twelve months leading up to Q2 2024, a healthy sign of its core business expansion. In terms of profitability, the company has demonstrated strong performance, with a gross profit margin of 57.64% and an operating income margin of 31.03% for the same period. These figures underscore Alphabet's ability to translate top-line growth into substantial earnings.
InvestingPro Tips highlight that Alphabet is trading at a high revenue valuation multiple and a high Price / Book multiple of 6.43. Despite this, the company's strong cash position allows it to comfortably cover interest payments and exceed short-term obligations. Additionally, analysts predict Alphabet will remain profitable this year, and it has been profitable over the last twelve months. These insights provide a more nuanced picture of Alphabet's financial health and potential for investors. For those seeking a deeper analysis, there are 10 additional InvestingPro Tips available for Alphabet, which can be found at https://www.investing.com/pro/GOOGL.
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