Shares of tech giant Alphabet (GOOGL) are anticipated to climb in the coming months, buoyed by the accelerating integration of artificial intelligence into its core offerings.
This optimistic outlook comes from investment firm Citizens, which recently upgraded the “Magnificent Seven” member to “market outperform” from “market perform,” setting an ambitious price target of $220.
This target suggests a substantial upside of nearly 27% from Thursday’s closing price.
The AI advantage in search
At the heart of this bullish sentiment is the conviction that AI represents a significant net tailwind for Alphabet, particularly within its dominant search business.
Andrew Boone, an analyst at Citizens, highlighted this in a recent note, asserting that “ChatGPT’s impact too small today to move enough queries away from Google to materially impact results.”
Instead, Boone argues that AI is actively expanding the search opportunity, enabling Google to address a wider array of queries and enhance monetization by better inferring user intent.
A key driver of this expansion is Google’s “AI Overviews” feature, which provides concise, AI-generated summaries at the top of search results.
This feature, which became available in the US in May, has already demonstrated its potential by leading to a 10% query growth in testing.
Boone projects a rapid escalation in its adoption, forecasting that AI Overviews will reach 4 billion monthly users by the third quarter of this year, a significant jump from 1.5 billion monthly users in the first quarter.
Furthermore, he expects this feature to cover approximately two-thirds of all search queries by the next quarter.
According to Boone, “AI is growing the use of search at a faster rate than ChatGPT is taking share.”
Financial projections and market reaction
The positive impact of AI is expected to translate directly into Alphabet’s financial performance.
The Citizens analyst anticipates an acceleration in Search revenue growth in the second quarter, attributing this to the dual benefits of AI-supported query expansion and ongoing advancements in Google’s advertising products.
Despite its robust long-term prospects, Alphabet’s stock has experienced a challenging start to the year, declining by over 8%.
However, the tide appears to be turning, with the stock rebounding about 6% over the past three months.
More notably, it has surged over 4% in just the past week, a rally mirroring broader investor confidence in the AI sector, which has also propelled other industry leaders like Nvidia to new highs.
Wall Street’s bullish outlook
The positive assessment from Citizens is largely consistent with the broader sentiment across Wall Street.
A significant majority of analysts maintain a bullish stance on Alphabet.
Out of 55 analysts covering the stock, 43 have issued either “strong buy” or “buy” ratings, underscoring widespread optimism regarding the company’s future.
The consensus target price among these analysts stands at nearly $202, which itself implies more than 16% upside from current levels.
In conclusion, as artificial intelligence continues to reshape the technological landscape, Alphabet appears well-positioned to leverage its AI advancements, particularly within its dominant search ecosystem, to drive both user engagement and financial growth, making it a compelling prospect for investors.
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