Chicago, IL – October 29, 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Alphabet Inc. GOOGL, Microsoft Corp. MSFT, Amazon.com, Inc. AMZN, Uber Technologies, Inc. UBER and Bank of America Corporation BAC.
Here are highlights from Tuesday’s Analyst Blog:
5 Reasons to Buy GOOGL Stock Before Alphabet’s Q3 Earnings
Google parent — Alphabet Inc. — will deliver its third-quarter earnings results before the start of trading on Tuesday. However, is it the right time to buy the stock? After all, the Alphabet stock has declined from the highs it had set a few months ago.
Fear not! Alphabet's AI prowess and diverse market strengths are anticipated to drive consistent profits and raise the share price. Let’s see –
Alphabet’s Q3 Earnings are Expected to Boost the Share Price
Alphabet is set to report encouraging third-quarter 2024 earnings, which may increase the share price. For the reporting quarter, Alphabet’s earnings per share (EPS) is expected to be $1.83, more than $1.55, indicating a jump of 18.1%.
Meanwhile, Alphabet has delivered a positive trailing four-quarter earnings surprise of 9.6%, on average, a tell-tale sign that the company has a reasonable chance to post earnings growth in the upcoming earnings release.
Revenues are projected to be $72.85 billion, a jump of 13.7% from year-ago sales of $64.05 billion. The AI boom will benefit Alphabet’s AI infrastructure and generative AI solutions in the third quarter, eventually boosting revenues vis-à-vis earnings.
Anyhow, management is always involved in the share buyback process, which reduces outstanding shares and improves EPS in the long run. As a result, Alphabet stock’s $7.65 Zacks Consensus Estimate for EPS is up 15.2% year over year.
Alphabet’s Cloud Division Continues to Exhibit Strength
Alphabet’s cloud division is facing stiff competition from Microsoft Corp. and Amazon.com, Inc. but it’s still growing at a solid pace and may help the stock price to scale northward.
The rise in AI products that require a significant amount of spending on the cloud helped the segment’s revenues to climb 29% year over year to $10.3 billion in the last quarter.
Worldwide acceptance of Alphabet’s Gemini and strength in large language models should help the Google Cloud division register $100 billion in annual revenues in the next five-year period, eventually helping profit margins to expand.
Notably, the company’s net profit margin is 26.7%, slightly more than the Internet - Services industry’s 26.4%. Any reading above 20% indicates a high-profit margin and that the company has been able to manage expenses efficiently.
Alphabet Stock to Gain From Digital Ad Spending Increase
Strength in the digital advertising market is a boon for the Alphabet stock. This is because Alphabet is one of the leaders in digital advertising with all its products including Google Search and YouTube having over 2 billion monthly users.
Alphabet is relying on AI expertise to increase usage and improve user satisfaction in the digital advertising space, which is expected to see a 10% increase in spending annually through 2028, per eMarketer.
Alphabet Has a Monopoly in Search Engine
When it comes to the search market, Alphabet has an undue advantage since its share is over 90%. Of course, ChatGPT has gained a lot of users in recent times but that’s not enough to derail Alphabet’s monopoly.
Alphabet, thus, can benefit from the economies of scale it enjoys in the search market and not have to worry about competition, a tailwind for the stock price. Alphabet’s overall revenues are time and again driven by the Google Search division.
Alphabet Stock to Benefit From Robotaxi Market Growth
Don’t forget Waymo LLC, Alphabet’s subsidiary, which could also be a reason for the stock price to scale upward. After all, the autonomous ride-hailing service is well-poised to gain from the expected increase of the robotaxi market by 67% annually through 2030, according to Straits Research.
To introduce its ride-hailing service in Austin and Atlanta by next year, Waymo has partnered with Uber Technologies, Inc. and analysts at Bank of America Corporation expect Waymo’s revenues to climb to $75 million this year and even more in the years to come.
Alphabet Stock to Buy Hand Over Fist
While the growth in the AI industry is expected to be a blessing for Alphabet’s upcoming earnings, the inherent strength in the cloud, digital advertising, search, and robotaxi markets should help the company churn out profits consistently and boost the share price.
Prominent brokers estimate that the GOOGL stock’s average short-term price target is $201.78, an upside of 24% from the last closing price of $162.72. The highest short-term price target is $225, indicating an upside of 38.3%.
Additionally, the GOOGL stock is trading above the short-term 50-day moving average (DMA) and long-term 200-DMA, signifying a bullish trend, and the perfect time to buy the stock.
The GOOGL stock is also trading at 21.6X forward earnings, less than the industry’s forward earnings multiple of 23.0X. Therefore, buying the stock won’t burn a hole in your wallet.
The GOOGL stock, rightfully, has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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