Bank of America Securities raised their price objective on Alphabet (NASDAQ:GOOGL) stock ahead of the tech giant’s forthcoming Q2 earnings report, saying AI search improvements and headcount measures are “likely to drive upside.”
Analysts at Bank of America Securities anticipate a positive earnings report for Alphabet, which is scheduled to come out on July 23.
Ahead of the print, they have slightly increased their Search revenue growth estimates to 12% year-over-year and forecast Q2 revenue and GAAP EPS at $70.9 billion and $1.91, respectively, above Street estimates.
Analysts attribute the positive outlook to AI integrations driving higher usage and ad click-through rates, stable Search revenue aided by improved macroeconomic conditions, and strong YouTube performance from Shorts monetization.
They also expect flat year-over-year headcount growth, ongoing restructuring to reduce costs, operating expenses of $22.7 billion, and core margins to increase by 183 basis points to 37.2%. Moreover, higher other income is expected to contribute to earnings per share (EPS) upside.
“We remain positive on growing AI integrations across Google’s ecosystem and think a broader rollout of AI overviews will help drive higher activity in the core Search business,” analysts at Bank of America Securities highlighted.
“AI use poses a long-term competitive risk, but in the near-term, we think revenue upside from AI driven monetization improvements will be a key 2Q takeaway.”
Also, focused expense management is projected to drive year-over-year margin growth in 2024, potentially boosting EPS.
Citing a market multiple expansion from lower rates, analysts at Bank of America Securities have raised their price target to $206 from $200.
Looking further ahead, Bank of America Securities said the second half of the year could be more challenging, due to a complex setup with slowing Search growth due to tougher comparisons, the launch of OpenAI's search, and outcomes from the Department of Justice (DOJ) trials.