BMO Capital Markets analysts raised their price target on Alphabet (NASDAQ:GOOGL) stock from $215 to $222 to reflect their growing optimism for the tech giant’s Search and YouTube businesses “given effective AI capabilities.”
Over the past year, Search share has increased by 130 basis points in the U.S. and 310 basis points globally, with analysts attributing these trends to the rise in repeat query behavior. The proliferation and adoption of chatbots embedded in most apps have led to users returning more frequently.
"As such, we are raising our 2Q24 Search estimate to +13.5% year-over-year from 13%, given continued strength across verticals and better-than-expected channel checks,” analysts said in a note.
For YouTube, the analysts forecast a 20-40 basis points increase in their 2024 Net Revenue estimate, assuming that TikTok ad spend is reduced by 15-30%. A 50% reduction in TikTok ad spend would provide a 60 basis points boost to YouTube revenue, while a complete 100% reduction would lead to a 90 basis points increase relative to the current forecast.
Furthermore, YouTube is benefiting from Google’s AI tools, particularly features like direct video upload from Studio mobile, the expansion of YouTube Create from 8 to 21 countries, auto-conversion from long-form to short-form content, and new ad tools for creators to monetize through AI capabilities.
"The output is growing time spent and continued share gains for U.S. CTV."
BMO analysts also predict a significant boost for Google Cloud driven by the rise in dual-cloud adoption among enterprises. They model a 28% growth for Google Cloud, with potential upside in the second half of 2024 “given growth in gen AI workloads and easier comps relative to 1H.”
The investment bank has modestly increased their estimates for Google's 2024 and 2025 Search revenue to $196 billion and $217 billion, respectively, up from $195 billion and $216 billion. Further, they now expect YouTube revenue to reach $37 billion in 2024 and $43 billion in 2025, compared to their previous estimates of $36.5 billion and $42 billion.