Alphabet Inc. (GOOGL) on Q4 2023 Results - Earnings Call Transcript
Operator: Welcome, everyone. Thank you for standing by for the Alphabet Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jim Friedland, Director of Investor Relations. Please go ahead. James Friedland: Thank you. Good afternoon, everyone, and welcome to Alphabet's Fourth Quarter 2023 Earnings Conference Call. With us today are Sundar Pichai, Philipp Schindler and Ruth Porat. Now I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business, operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Forms 10-K and 10-Q, including the risk factors discussed in our upcoming Form 10-K filing for the year ended December 31, 2023. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at abc.xyz/investor. Our comments will be on year-over-year comparisons unless we state otherwise. And now I'll turn the call over to Sundar. Sundar Pichai: Hello, everyone. Our results reflect strong momentum and product innovation continuing into 2024. Today, I'm going to talk about four main topics. One, our investments in AI, including how it's helping Search; two, subscriptions, which reached $15 billion in annual revenue, up 5x since 2019. Subscriptions is growing strongly powered by YouTube Premium and Music, YouTube TV and Google One. Three, Cloud, which crossed $9 billion in revenues this quarter and saw accelerated growth driven by our GenAI and product leadership; and four, our investments and focus to meet the growth opportunities ahead. First, AI and Search. As you know, we have long led the way in using AI to improve many of our products from Search to Ads to most of our consumer and enterprise products, helping billions of people already. Last year brought new excitement around GenAI, and I'm proud of how we responded responsibly with deep advances in foundation models and a number of great launches. We closed the year by launching the Gemini era, a new industry-leading series of models that will fuel the next generation of advances. Gemini is the first realization of the vision we had when we formed Google DeepMind, bringing together our 2 world-class research teams. It's engineered to understand and combine text, images, audio, video and code in a natively multimodal way, and it can run on everything from mobile devices to data centers. Gemini gives us a great foundation. It's already demonstrating state-of-the-art capabilities, and it's only going to get better. Gemini Ultra is coming soon. The team is already working on the next versions and bringing it to our products. That starts with Search. We are already experimenting with Gemini in Search, where it's making our Search Generative Experience, or SGE, faster for users. We have seen a 40% reduction in latency in English in the U.S. I'm happy with what we are seeing in the earliest days of SGE. It's available through Search Labs in 7 languages. By applying generative AI to Search, we are able to serve a wider range of information needs and answer new types of questions, including those that benefit from multiple perspectives. People are finding it particularly useful for more complex questions like comparisons or longer queries. It's also helpful in areas where people are looking for deeper understanding, such as education or even gift ideas. We are improving satisfaction, including answers for more conversational and intricate queries. As I mentioned earlier, we are surfacing more links with SGE and linking to a wider range of sources on the results page, and we'll continue to prioritize approaches that add value for our users and send valuable traffic to publishers. Beyond SGE, we are continuing to use AI to make searching more accessible and intuitive. Circle to Search lets you search what you see on Android phones with a simple gesture without switching apps. It's available starting this week on Pixel 8 and Pixel 8 Pro and the new Samsung Galaxy S24 Series. And Lens now offers generative AI overviews. You can add text to a visual search to ask questions about anything you see and get AI-powered insights in the moment. In addition to Search, we are also seeing a lot of interest in our AI-powered solutions for advertisers. That includes our new conversational experience that uses Gemini to accelerate the creation of Search campaigns. Then there is Bard, our conversational AI tool that complements Search. It's now powered by Gemini Pro and is much more capable at things like understanding, summarizing, reasoning, coding and planning. It's now in over 40 languages and over 230 countries around the world. Looking ahead, we'll be rolling out an even more advanced version for subscribers powered by Gemini Ultra. That's a good segue to subscriptions. As I said earlier, it's now a $15 billion business annually. YouTube is the key driver of our subscription revenues. Available in over 100 countries and regions, YouTube Music and Premium have real momentum. They're engaging passionate users and driving great returns for the music industry and creators. YouTube TV is also doing well. We've had great consumer feedback on the viewing experience. People love the navigation, multiview and unlimited DVR. NFL Sunday Ticket has found its perfect home on YouTube, and Philipp will talk about that more. Let me also talk about our subscription service, Google One. It's doing incredibly well with strong user growth. It provides expanded storage, unlocks exclusive features in Google products and allows us to build a strong relationship with our most engaged users. Google One is growing very well, and we are just about to cross 100 million subscribers. From here, we are going to bring in more AI features and look forward to more strong growth to come. Next, Google Cloud. Throughout 2023, we introduced thousands of product advances, including broad GenAI capabilities across our AI infrastructure, our Vertex AI platform and our new Duet AI agents. In Q4, our product and GenAI leadership enabled us to win and expand relationships with many leading brands, including Hugging Face, McDonald's, Motorola Mobility and Verizon. Google Cloud offers our AI Hypercomputer, a groundbreaking supercomputing architecture that combines our powerful TPUs and GPUs, AI software and multi-slice and multi-host technology to provide performance and cost advantages for training and serving models. Customers like Anthropic, Character.AI, Essential AI and Mistral AI are building and serving models on it. For developers building GenAI applications, we offer Vertex AI, a comprehensive enterprise AI platform. It helps customers like Deutsche Telekom and Moody's discover, customize, augment and deploy over 130 GenAI models, including PaLM, MedPaLM, Sec-PaLM and Gemini as well as popular open source and partner models. Vertex AI has seen strong adoption with the API request increasing nearly 6x from H1 to H2 last year. Using Vertex AI, Samsung recently announced its Galaxy S24 Series smartphone with Gemini and Imagen 2, our advanced text-to-image model. Shutterstock has added Imagen 2 to their AI image generator, enabling users to turn simple text prompts into unique visuals. And Victoria's Secret & Co. will look to personalize and improve the customer experience with Gemini, Vertex AI, Search and Conversations. Customers are increasingly choosing Duet AI, our packaged AI agents for Google Workspace and Google Cloud Platform, to boost productivity and improve their operations. Since its launch, thousands of companies and more than 1 million trusted testers have used Duet AI. It will incorporate Gemini soon. In Workspace, Duet AI is helping employees benefit from improved productivity and creativity at thousands of paying customers around the world, including Singapore Post, Uber and Woolworths. In Google Cloud Platform, Duet AI assists software developers and cybersecurity analysts. Duet AI for Developers is the only GenAI offering to support the complete development and operations life cycle, fine-tuned with the customer's own core purpose and policies. It's helping Wayfair, GE Appliances and Commerzbank write better software, faster with AI code completion, code generation and chat support. With Duet AI and Security Operations, we are helping cybersecurity teams at Fiserv, Spotify and Pfizer. Our robust growth has been driven by strong direct and indirect channels. With ISVs, we have nearly tripled the number of co-sell deals from 2022 to 2023. In our ecosystem, there are nearly 90,000 Google Cloud GenAI-enabled consultants. And Accenture has teamed up with Google Cloud to create a joint generative AI center of excellence. Next, let me turn to our focus and discipline as we pursue the opportunities ahead. Search, YouTube and Cloud are supported by our state-of-the-art compute infrastructure. This infrastructure is also key to realizing our big AI ambitions. It's a major differentiator for us. We continue to invest responsibly in our data centers and compute to support this new wave of growth in AI-powered services for us and for our customers. Through this, we are being disciplined in how we run the company. You've heard me talk about our efforts to durably reengineer our cost base and to improve our velocity and efficiency. That work continues. Teams are working to focus on key priorities and execute fast, removing layers and simplifying their organizational structures. As just one example, our devices team has brought together different teams from across Nest, Fitbit and other teams into a new functional structure. This will help us pull resources and drive progress across our Pixel portfolio. Across different teams, we have wound down some nonpriority projects, which will help us invest and operate well in our growth areas. We are also improving our machine utilization, building on our years of experience in driving cost efficiencies in our computing infrastructure and operations. And through our supplier efficiency efforts and automation of certain processes, we have made major improvements in areas like procurement, achieving significant savings. That's a snapshot of the quarter. Before I close, a couple of other highlights. Pixel 8, our AI-first phone, was awarded Phone of the Year by numerous outlets. It now uses Gemini Nano with features like Magic Compose for Google Messages and more to come. In our Other Bets portfolio of companies, Waymo, which is deeply focused on safety, reached over 1 million fully autonomous ride-hailing trips. And Isomorphic Labs entered into strategic partnerships with Eli Lilly and Novartis to apply AI to treat diseases, which has great potential. 2023 was a year of profound innovation and product momentum. Thank you to our many partners. We succeed when our partners do, and we are grateful for the work we do together. From our partners across the Android ecosystem who are on display at CES to our deep relationships with retailers, small businesses and advertising partners, to the next generation of AI start-ups and developers and many more. I also want to thank all of our employees for their hard work throughout 2023 and the start of the new year. I'm excited for what's ahead in 2024. Philipp? Philipp Schindler: Thanks, Sundar, and hi, everyone. Google Services revenues of $76 billion were up 12% year-on-year. In Google advertising, Search and other revenues grew 13% year-on-year, led again by solid growth in the retail vertical. We had particular strength in retail in APAC, a trend that began in the second quarter of 2023 and continued through the end of the year. YouTube ads revenue were up 16% year-on-year driven by growth in both direct response and brand. And network revenues declined 2% year-on-year. In subscriptions, platforms and devices, which was previously named Google Other, year-on-year revenues increased 23% driven by strong growth in subscriptions. Now for some color on the quarter and where we see continued upside for long-term advertising growth. Over the last few calls, I have consistently highlighted how we're putting Google AI to work for our customers to deliver profitability and help them achieve their goals in a do-more-with-less environment. From a product perspective, in Q4, Performance Max remained a bright spot. We're also excited about demand gen momentum. This is our big bet to help social advertisers find and convert consumers via immersive, relevant visual creatives across YouTube, including YouTube Shorts, Gmail and Discover. In a single campaign, you get access to over 3 billion users as they stream, scroll, connect and decide what to buy. Tens of thousands of advertisers are testing and on average seeing 6% more conversions per dollar versus image-only ads and discovery campaigns. As we look ahead, we're also starting to put generative AI in the hands of more and more businesses to help them build better campaigns and even better performing ads. Automatically created assets help advertisers show more relevant search ads by creating tailored headlines and descriptions based on each ad's context. Adoption was up with strong feedback in Q4. In addition to now being available in 8 languages, more advanced GenAI-powered capabilities are coming to ACA. And then last week's big news was that Gemini will power new conversational experience in Google Ads. This is open and beta to U.S. and U.K. advertisers. Early tests show advertisers are building higher-quality search campaigns with less effort, especially SMBs who are 42% more likely to publish a campaign with good or excellent ad strength. We can't wait to see how this continues to drive performance and level the playing field for advertisers of all sizes. As we shared last quarter, Ads will continue to play an important role in the new search experience, and we'll continue to experiment with new formats native to SGE. SGE is creating new opportunities for us to improve commercial journeys for people by showing relevant ads alongside search results. We've also found that people are finding ads either above or below the AI-powered overview helpful as they provide useful options for people to take action and connect with businesses. Looking at our strong Search performance for the fourth quarter. Retail was a highlight. We continue to see a stronger start to the season up to and including Cyber Five. In Q3, we indicated that we were seeing early trends of consumers being very price-conscious, and we saw this play out in Q4. With promotional demand at an all-time high, deal seekers using Google had access to 2x the deals in the U.S. versus last season as well as a better shopping experience. Launches included a one-stop shop deals destination, new filters like [ Get it Fast ] and AI-generated gifting recommendations in SGE. These new features drove incremental query growth during key shopping moments like Cyber Five. Our proven AI-powered ad solutions were also a win for retailers looking to accelerate omni growth and capture holiday demand. Quick examples include a large U.S. big-box retailer who drove a 60%-plus increase in omni ROAS and a 22%-plus increase in store traffic using Performance Max during Cyber Five; and a well-known global fashion brand, who drove a 15%-plus higher omnichannel conversion rate versus regular shopping traffic by showcasing its store pickup offering across top markets through pickup later on shopping ads. Moving on to YouTube. We're obviously pleased with YouTube's advertising revenue growth in Q4 and also significant growth in our subscription revenue. I'll reiterate what I have said before: YouTube's success starts with creator success. We give millions of creators more ways to create content and connect with fans and more ways to make money and build their own businesses than any other platform. More creators means more content, which leads to more viewers. And via ads and subscriptions, these viewers fund our creators and drive the eyeballs and engagement our advertisers want. To keep this momentum going, we're focused on delivering value across 4 pillars: creation, viewers, monetization and responsibility. First, creation, which increasingly takes place on mobile devices. We've invested in a full suite of tools, including our new YouTube Create app for Shorts, to help people make everything from 15-second Shorts to 15-minute videos to 15-hour live streams with a production studio in the palm of their hands. GenAI is supercharging these capabilities. Anyone with a phone can swap in a new backdrop, remove background extras, translate their video into dozens of languages, all without a big studio budget. We're excited about our first products in this area from Dream Screen for AI-generated backgrounds to Aloud for AI-powered dubbing. There is more to come. Number two, viewers. We continue to grow watch time across YouTube with strong growth in Shorts and connected TV. Shorts remains a top priority. We have 2 billion-plus logged-in users every month, and we are averaging 70 billion in daily views. Connected TVs, or what we refer to as the living room, is where viewership is growing the fastest. We're investing to make this experience even better with interactive features tailored to TVs, plus the content people love: our creators, NFL Sunday Ticket and the range of live sports and studio content via YouTube TV and Primetime Channels. Put this all together and YouTube is the must-have app on every connected TV. Monetization is pillar #3 and realized through a combination of ad-supported and subscription offerings. Advertising generates the bulk of our revenue, and we continue to invest heavily here. We've rolled out CTV-first formats like 30-second nonskippable ads and pause experiences as well as an industry-first send-to-phone experience that lets people use a second screen to engage with ads. For Shorts, we've developed new formats that are less interruptive to viewers. It's early. We're learning but excited by the opportunities for ads this can unlock. Shorts monetization continues to progress nicely. Our AI-powered video formats from video reach and video view campaigns to demand gen and video action continue to make advertiser dollars go further and drive results across the funnel. We're also introducing new and existing advertisers to YouTube via sports content. 90-plus upfront and scatter advertisers, including Unilever, are partnering with YouTube in our first year across NFL Sunday Ticket in-game advertising opportunities. Our subscription offerings are also growing at a healthy clip. YouTube Music and Premium performed well. Premium users are delivering more value to our partners and YouTube than even ad-supported users do. On average, each additional Premium sign-up boost earnings for creators, music and media partners and YouTube itself. And we've made Premium even more attractive with new features, bundles and other enhancements. We're also pleased with our first season of NFL Sunday Ticket. It gave creators new opportunities to create content and feed user engagement across traditional user content and professional sports content. Feedback on the user experience, including multiview, has been great. We're excited to continue to innovate here. Responsibility is our fourth pillar, and it underlines everything we do across YouTube. We continue to focus relentlessly on this. As always, deepening our relationships with key partners to bring them the best of Google is a key priority for us, and we continue to do this across industries in Q4. We just talked about the NFL. Sundar mentioned Samsung, among others earlier. Another highlight was our expanded partnership with Porsche to enhance customers' digital experiences with a deeper in-vehicle integration of Google built-in services, including Google Maps and Play. Whether it's continued collaboration with our partners and key ecosystems, we're putting Google AI to work for more customers. I'm excited about the opportunities for continued impact in 2024. I'll wrap with a huge note of gratitude to our customers and partners. Our success is only possible because of their success and then to our Googlers for their outstanding work and focus this year. Ruth, over to you. Ruth Porat: Thank you, Philipp. We are very pleased with our full year results with 2023 Alphabet revenues of $307 billion, up 9% versus 2022, which added $25 billion to revenues for the year. We ended with a strong fourth quarter with consolidated revenues of $86.3 billion, up 13% versus last year in both reported and constant currency. Search remained the largest contributor to revenue growth. My comments will be on year-over-year comparisons for the fourth quarter, unless I state otherwise. Total cost of revenues was $37.6 billion, up 6%. Other cost of revenues was $23.6 billion, up 5%, with the increase driven primarily by content acquisition costs associated with YouTube subscription offerings. The growth rate also reflects the offsetting benefit of lapping $1.2 billion in inventory-related charges that we called out in the fourth quarter last year as well as a reduction in depreciation expense due to changes in estimated useful lives we made starting in the first quarter of 2023. In terms of total expenses, the year-on-year comparisons reflect an additional $1.2 billion in exit charges that we took in the fourth quarter of 2023 in connection with actions to optimize our global office space. As you can see in our earnings release, these charges were allocated across the expense lines in other cost of revenues and OpEx based on associated head count. Operating expenses were $25 billion, up 11%, primarily reflecting an increase in R&D expenses, which were driven by the real estate charges, followed by compensation. Operating income was $23.7 billion, up 30%, and our operating margin was 27%. Net income was $20.7 billion, and EPS was $1.64. We delivered free cash flow of $7.9 billion, which was affected by the timing of the $10.5 billion tax payment we made on October 16 that we called out previously related to the deferral of certain tax payments to the fourth quarter. For the full year 2023, free cash flow was $69 billion. We repurchased a total of $62 billion of our Class A and Class C shares in 2023 and ended the year with $111 billion in cash and marketable securities. Turning to segment results. Within Google Services, revenues were $76.3 billion, up 12%. Google Search and other advertising revenues of $48 billion in the quarter were up 13%, led again by growth in retail. YouTube advertising revenues of $9.2 billion were up 16% driven by both direct response and brand advertising. Network advertising revenues of $8.3 billion were down 2%. Subscriptions, platforms and devices revenues, which we previously referred to as other revenues, were $10.8 billion, up 23%, primarily reflecting growth in YouTube subscription revenues. TAC was $14 billion, up 8%. Google Services' operating income was $26.7 billion, up 32%, and the operating margin was 35%. Turning to the Google Cloud segment. Revenues were $9.2 billion for the quarter, up 26%. We're very pleased with the momentum of GCP with an increasing contribution from AI. Google Workspace also delivered strong revenue growth primarily driven by increases in average revenue per seat. Google Cloud delivered operating income of $864 million and an operating margin of 9%. As to our Other Bets, for the full year 2023, revenues were $1.5 billion and the operating loss was $4.1 billion. Results in the fourth quarter benefited from a milestone payment in one of the Other Bets. Turning to our outlook for the business. With respect to Google Services, first, within advertising. We were pleased with the sequential revenue growth of Search and YouTube advertising throughout 2023, which reflects the extraordinary work across our teams to drive improved experiences for users and attractive ROI for advertisers. As we enter 2024 with advertising revenues of more than $100 billion higher than 2019, we remain focused on sustaining healthy growth on this larger base. Second, within subscriptions, platforms and devices, our total revenues from subscription products reached $15 billion for the full year 2023 driven primarily by substantial growth in subscribers for our YouTube subscription offerings. The substantial increase in our subscription revenues over the past few years demonstrates the ability of our teams to deliver high value-add offerings and provides a strong base on which to build, including through YouTube and newer services like Google One. Play had solid growth again in the fourth quarter driven primarily by an increase in the number of buyers. In devices, we continue to make sizable investments with increased emphasis on our Pixel family, particularly with AI-powered innovation while driving further efficiencies across the portfolio. Turning to Google Cloud. We are pleased with operating performance in the year. Full year revenues of $33 billion were up 26% versus prior year, ending with strong Q4 performance. The Cloud team is intensely focused on bringing the benefits of Gemini, our industry-leading AI technology, to enterprises and governments globally, and we are gratified with the level of engagement. The strong demand we are seeing for our vertically integrated AI portfolio is creating new opportunities for Google Cloud across every product area. In terms of profitability, the improvement in 2023 reflects sustained focus across the team with the intent to maintain healthy profitability while we continue to invest to support long-term growth. Turning to margins and expenses. As we have repeatedly stressed, we remain committed to our framework to durably reengineer our cost base as we invest to support our growth priorities. Key contributors to moderating our expense growth include: first, product and process prioritization to ensure we have the right resources behind our most important opportunities and to reallocate resources where we can; second, organizational efficiency and structure. We're focused on removing layers to simplify execution and drive velocity. Both product prioritization and the organization design efforts result in a slower pace of hiring, as you can see with our head count down year-on-year, reflecting the reductions we announced in the first quarter of 2023 and a much slower pace of hiring. We will continue to invest in top technical and engineering talent. Finally, we continue to execute the other work streams to slow expense growth, including improving efficiency in our technical infrastructure, streamlining operations across Alphabet through the use of AI, increasing efficiency of our spend with suppliers and vendors through our central procurement organization and optimizing our real estate portfolio. With respect to CapEx, our reported CapEx in the fourth quarter was $11 billion, driven overwhelmingly by investment in our technical infrastructure with the largest component for servers followed by data centers. The step-up in CapEx in Q4 reflects our outlook for the extraordinary applications of AI to deliver for users, advertisers, developers, cloud enterprise customers and governments globally and the long-term growth opportunities that offers. In 2024, we expect investment in CapEx will be notably larger than in 2023. With regard to Other Bets, we've been working to sharpen our investment focus while capturing the upside given compelling technology breakthroughs across the portfolio. For example, last week, Alphabet's X announced that it would be moving to spin out more projects as independent companies through external capital, giving X the opportunity to bring more focus to the breakthrough technologies it is working on to address some of the world's most pressing challenges. Thank you. Sundar, Philipp and I will now take your questions. Operator: [Operator Instructions] And our first question comes from Brian Nowak with Morgan Stanley. Brian Nowak: I have two for Philipp. Philipp, the first one is about sort of a lot of the new generative AI advertising tools. You obviously have a lot of irons in the fire here. You've been talking about some of the early momentum with tens of thousands of advertisers. The question is, can you sort of walk us through some of the hurdles and gating factors that we should be thinking through that dictate the pace at which these tools can really be rolled out broadly just so we and advertisers can kind of get an understanding for when they could have a bigger impact on the whole business? And then secondly, how do you think about the long-term sales force intensity of the advertising business as you roll more AI-based tools like PMax impacting the overall ad allocation? Philipp Schindler: Yes. Thank you so much. So I've covered this a little bit on previous quarters. AI has been at the core of our advertising products for a very, very long time. And the recent advances are really allowing us to drive more value for advertisers across a large range of different areas: bidding, targeting, creative as well as our core advertiser and publisher experiences. We are seeing in core search ads, for example, the bidding side, the value-based bidding as a very significant one; on the targeting side, the broad match; on creative, responsive search ads automatically created ads assets. And we are very happy with the progress we're seeing in those areas. I think I mentioned in one of the previous calls that one, you asked about hurdles and gating factors. The AI essentials play neutral in this, trying to get everybody ready to really take full advantage of those tools. We talked about the progress on PMax as well that we're very happy with in Q4. So overall, I think we are on track with what we're expecting here. On the sales force intensity side, we have done a few reallocations or let me call it portfolio adjustments. As you know, we have 2 large different teams. One is our LCS, large customer solutions team that's really focused on transformational growth for our largest and most sophisticated customers. And we have our -- we call them GCS, Global Customer Solutions team, which is the channel where really every customer starts from some of our largest customers now to also the millions of smaller ones and SMBs. The GCS is really then scaling growth by dynamically delivering really the right treatment for every customer. And important to note, it's also our fastest-growing channel, and it delivered particularly strong growth in Q4. So we have done adjustments here to focus more resources on the GCS side. But I also want to be clear, when we restructure, there's always an opportunity to be more efficient and smarter in how we service and grow our customers. We're not restructuring because AI is taking away roles that's important here. But we see significant opportunities here with our AI-powered solution to actually deliver incredible ROI at scale, and that's why we're doing some of those adjustments. So I look at sales force intensity as a stronger focus going forward on the channels I mentioned here. Operator: Our next question comes from Doug Anmuth with JPMorgan. Douglas Anmuth: One for Ruth and one for Philipp. Ruth, you're now into year 2 of durably reengineering your cost structure. Can you just help us assess your progress so far? And are there any guideposts that we should be thinking about going forward? And then Philipp, can you talk more about NFL Sunday Ticket and just what your key learnings were in year 1? How are you thinking about the returns on the investment on both from an advertising perspective and then also subscribers to both Sunday Ticket and YouTube TV? Ruth Porat: Thanks for the question. So we are very pleased with the progress we're continuing to make, and we are very committed to the framework to durably reengineer our cost base really as we're investing to support the growth priorities. I tried to call out a number of them in opening comments, but really, as you're looking at the work being done across Google, across Alphabet, it does start with product and process prioritization to make sure we've got the right resources behind the most important opportunities, and then that creates the opportunity for reallocating resources where we can. Then we talked a lot about this quarter about organizational efficiency and structure, and we're focused on removing layers to simplify execution and drive velocity. The combination of those 2, product prioritization and organizational design work, has resulted in the slower pace of hiring. You can see that in our head count numbers down year-on-year. You can see it in some of the -- in the results that we delivered in the fourth quarter. You can -- and it also goes to the announcements around first quarter and much lower pace of hiring. At this point in the quarter, we do estimate that severance-related expense will be roughly $700 million in the first quarter as we've continued these efforts. But as I said in opening comments, we will continue to invest in top engineering. So that's sort of the big one, if you start with product prioritization and organizational design, which is why also I made the note about the severance-related expense, which helps pave the way as we're continuing to do the work that we're doing. But then we have a host of other work streams, which I talked about, everything with improving efficiency in our technical infrastructure, which is a very large ongoing effort; streamlining operations across Alphabet through use of AI; all the work we're doing with our suppliers and vendors; the work we're doing optimizing our real estate portfolio. So when we've described durably reengineering, it's about continuing to build on work that started, and that is ongoing. Philipp Schindler: So on the NFL Sunday Ticket side, look, as I said earlier, NFL Sunday Ticket supports our long-term strategy and really help solidify YouTube's position as a must-have app on everyone's TV set. You asked about some of the learnings. Maybe I'll start with the viewing experience. We've received great feedback so far. People like the navigation, multiview, the chat, the lack of latency, really, really positive feedback on this one. You asked about the ads and the subs. Maybe I'll start with the subscribers. We're pleased with the NFL Sunday Ticket sign-ups in our first season both as part of the YouTube TV bundle and as a stand-alone offering on YouTube Primetime Channels. Remember, you can access them via both. Nothing more to share on the sub side today on this one. On the ad side, as you know, advertisers can buy from an NFL lineup as part of our YouTube Select portfolio. And this actually allows advertisers to reach football fans across YouTube's pretty unique breadth of NFL content, independently of whether you're viewing live NFL games or on YouTube TV or Primetime Channels or watching NFL highlights, post-game commentary on YouTube channels. And we saw solid demand across the ad market around our YouTube Sunday Ticket offering here. We're excited about the partnership ahead or the partnerships ahead. This is our first season. And I mentioned over 90 upfront and scatter advertisers partnered with YouTube in our first year across NFL Sunday Ticket in-game opportunities, which we really appreciate. Operator: Our next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: Two, if I could. Sundar, a bigger-picture question, coming back to your comments earlier in the call on Search Generative Experience. When you think about the evolution of product over the next couple of years, how do you envision more traditional search and things like the Google Assistant continuing to evolve in a world of Search Generative Experience and Bard? And what that might mean for elements of commercial and noncommercial search and how use cases might change in the years ahead? And then Ruth, I just want to make sure we understood some of the messaging from the release and the public comments around one-timers in the quarter itself. It seems as if they were not allocated to the segments but are more elements of Other Bets and Alphabet-level activities. I just want to confirm whether elements of those one-timers were captured in the P&L statement and whether there were also any elements of legal one-timers that would be called out this quarter as well. Sundar Pichai: Thanks, Eric. Great question. Look, it is an exciting time. Clearly, as I said, as we are incorporating SGE in the product, the early feedback is positive. And we've been iterating on it, and it clearly works for certain type of queries very well. We are expanding the set of queries where it works very well. It definitely is answering a certain category of queries for the first time in a better way. So that gives us direction to proceed as well. Overall, one of the things I think people underestimate about Search is the breadth of Search, the amount of queries we see constantly on a new day, which we haven't seen before. And so the trick here is to deliver that high-quality experience across the breadth of what we see in Search. And over time, we think Assistant will be very complementary. And we will again use generative AI there, particularly with our most advanced models in Bard and allows us to act more like an agent over time, if I were to think about the future and maybe go beyond answers and follow through for users even more. So that is the -- directionally, what the opportunity set is. Obviously, a lot of execution ahead. But it's an area where I think we have a deep sense of what to do. And all the work we have taken so far, the feedback has been super positive. Ruth Porat: And then in terms of your other question, so on the real estate charge of $1.2 billion in exit charges related to real estate, that is in Alphabet-level activities. But the other comment I was making in opening comments is when you go through the various line items, R&D, et cetera, you see it spread there. And we have a table and IR can walk anybody through the technicals on that just to understand how it then gets arrayed across the various lines in the P&L. Operator: Our next question comes from Michael Nathanson with MoffettNathanson. Michael Nathanson: I have two for Philipp, I think. Given the importance of connected TV engagement in YouTube, can you talk about the opportunity outside the U.S. for connected TV? And what the company is doing at large to drive more adoption of YouTube or connected TVs given the Google operating system? And can you talk about outside the U.S.? And then you've been consistent about the strength of Shorts over the past year. Can you talk a bit about the modernization challenges? Do you still see the headwinds that you saw at the beginning? Anything you could share about the density of the auction or advertising interest on Shorts. So help us with whether or not that's still a headwind to growth. Philipp Schindler: Yes. Thank you so much for your question. On the connected TV side, I mentioned it actually continues to perform really well. I said before, YouTube is the leader in U.S. streaming watch time and it's not just one audience group diving deep it's really all audiences. On the international side, it's something we are closely looking at. There's nothing specific I have to add at this moment in time on this one. On the Shorts monetization side, look, we built Shorts to respond to the huge demand from both creators and viewers for short-form video. And we're very pleased with the growth we've seen. I mentioned 2 billion-plus logged-in users every month, 70 billion in daily views. Specifically to the monetization question, Shorts monetization continues to progress nicely. In fact, actually, since we introduced revenue sharing for Shorts, the total creator earnings generated from Shorts have increased every month, and we expect this to continue. And similar, obviously, to our long-form videos, we're really committed here to a long-term partnership. And you heard me say this before, right, when creators succeed, we succeed. Operator: Our next question comes from Stephen Ju with UBS. Stephen Ju: So Philipp, this is not a new question, but it's also been about 2 years since PMax was launched. But it seems like there's been this long lineage of product development and rollout of things like smart bidding in your history, which I believe at the time was designed to help smaller advertisers more easily run search advertising. And today, you're helping me to generate creative as well as manage my spend and maximize ROI across multiple Google Services. So how are you feeling about enabling SMBs who otherwise could not advertise with you before? And what kind of TAM expansion tailwind does that create for your revenue growth over the longer term? Philipp Schindler: Look, as you know, SMBs are a huge focus for us. We mentioned this several times before. They're part of our GCS channel, not only there's more in this. But they've been under a ton of change over the last few years. And our focus has always been here on investing in solutions that really help level the playing field, and you mentioned several of those. So actually, SMBs can compete with bigger brands and more sophisticated advertisers. And so the feedback we're always getting is they need easy solutions that could drive value quickly, and several of the AI-powered solutions that you're mentioning are actually making the workflow and the whole on-ramp and the bidded targeting creative and so on, you mentioned that is so much easier for SMBs. So we're very satisfied with what we're seeing here. We will continue to invest. And I feel AI is really a helpful, very interesting future path to make life not only easier but also much more productive and better ROIs over time, more level playing field for SMBs. Operator: Our next question comes from Justin Post with BAML. Justin Post: Maybe one for Sundar and one for Ruth. Just on Search growth, I think there are some concerns on use of competitive AI tools as an alternative to Search. Just wondering if you're seeing any changes in query volumes, positive or negative, since you've seen the year evolve and more Search Generative Experiences. And what can really make Google stand out versus other AI tools? And then Ruth, CapEx was $11 billion, a step-up, obviously. Any onetime items in there? Or is that how we should think about the new run rate into '24. Sundar Pichai: Thanks, Justin. First of all, look, we think about effects on Search, obviously, more broadly. People have a lot of information choices. So -- and user expectations are constantly evolving. And so we've been doing this for a long time. And I think what ends up mattering is a strong continuous track record of innovation. Obviously, generative AI is a new tool in the arsenal. But there's a lot more that goes into Search: the breadth, the depth, the diversity across verticals, stability to follow through, getting actually access to rich, diverse sources of content on the web and putting it all together in a compelling way. And I think, through the year 2, when we test, we test Search Generative Experience, particularly against everything that's out there. And we can see the progress we are making and how much users are liking the experience better. And so I think I feel very good about the progress. And our road map for '24 is strong both on the Search and the underlying AI progress, including the model. So I'm pretty excited about what's ahead of us in '24. Ruth Porat: And with respect to CapEx, the CapEx of $11 billion in the fourth quarter, as I indicated, was overwhelmingly investment in our technical infrastructure. To your question, there was no onetime item in there. It really reflects is our outlook for everything Sundar and Philipp and I have been talking about, the extraordinary applications of AI within Google DeepMind, Google Services, Google Cloud, it's across the board for users, for advertisers, developers, cloud enterprise customers, governments. And it's really the long-term opportunity that offers. So last quarter, we did note that CapEx would continue to grow in 2024. We do expect 2024 full year CapEx to be notably larger than 2023. As a note, I think you all know this, but timing of cash payments can affect the quarterly CapEx number. But the main point is we're continuing to invest. Operator: Our next question comes from Ross Sandler with Barclays. Ross Sandler: So I guess a question for, I don't know if it's Sundar or Philipp. But if we go back to the DOJ trial that happened in the fall, there was a document that was disclosed from Google that said something along the lines of why being on ad quality team to deliver 20% RPM growth in Search is a fragile strategy. So dating back to 2019, your business has, I think, more than doubled since then. So I guess, as we sit here today in early 2024, how do you feel about Google's ability to drive Search RPM going forward? And I guess in the context of what Ruth said tonight about the large revenue base, just how do you feel about the monetization? Sundar Pichai: Look, I think I have tremendous confidence in the quality driven both our work, be it search quality, ads quality, our improvements on search, our improvements on ads RPM, all -- 2 foundational pillars are extraordinary focus on ads quality so that we deliver the actual ROI to advertisers and improve the experience for users and all underpinned by rigor and technical excellence and go-to-market excellence, right? So the fundamental attributes don't change. I think AI gives us opportunity both on the organic side as well as on the monetization side. And I think we are in the early days of it. I think we'll be able to, taking a long-term view, serve information needs in a deeper way. And so I think about it in that -- with that long-term context, and I'm pretty excited about what's ahead. Operator: And our last question will be from Mark Mahaney with Evercore. Mark Stephen Mahaney: One question on YouTube AI and one on cloud. On cloud first, there's just this volatility, this material deceleration last quarter and the nice reacceleration this quarter. Is that explained by where we are in the optimization cycle, and it may be generative AI workloads starting to trickle in now and cause that growth curve to bend back up? Any commentary just on the sort of the volatility, the deceleration and the reacceleration that we've seen? And then Philipp, I wanted to ask on the creative side, and particularly on YouTube and ads and the creative, using AI to improve the creative and really to offer SMBs who have been with Google forever but offer them now performance-based video ad campaigns created by AI. Is that kind of a new growth area? How far along are you in terms of offering this out into the market? And do you think that this opens up a new area of spend that wasn't there before? Sundar Pichai: Thanks, Mark. On cloud, let me take that. First of all, a combination of factors. I think definitely excitement around the AI solutions on top of our foundational pillar, be it data and analytics, infrastructure, security, et cetera. But AI is definitely something which is driving interest and early adoption. And as you saw that greater than 70% of GenAI unicorns are using Google Cloud. And so I think it's an area where our strengths will continue to play out as we go through '24, especially when I look at innovation ahead from us on the AI front. And second, I think there are regional variations, but the cost optimizations in many parts are something we have mostly worked through. And I think that was a contributing factor as well. Philipp Schindler: So on your YouTube question, maybe let me start with a general view. YouTube's mission, you know, has enabled millions of creators around the world to share their voice and connect with audiences and obviously build thriving businesses here. And AI has been a very critical piece of this already. You are obviously aware of the made YouTube announcement where we introduced a whole lot of new complementary creativity features on YouTube, including Dream Screen, for example, and a lot of other really interesting tools and thoughts. You can obviously imagine that we can take this more actively to the advertising world already. As you know, it continues already to power AI, a lot of our video ad solutions and measurement capabilities. It's part of video-rich campaigns. Multi-format ads are -- actually, there is a generative creator music that actually makes it easier for creators to design the perfect soundtrack already. And as I said earlier, AI will unlock a new world of creativity. And you can see how this will -- if you just look at where models are heading, where multimodal models are heading, where the generation capabilities of those models are heading, you can absolutely see how this will impact and positively impact and simplify the flow for creators, similar to what you see already emerging in some of our core products like ACA on the Search side. Operator: And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Jim Friedland for any further remarks. James Friedland: Thanks, everyone, for joining us today. We look forward to speaking with you again on our first quarter 2024 call. Thank you and have a good evening. Operator: Thank you, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.
Recent Earnings Impact on Tech Stocks and Emerging Opportunities
- The recent earnings reports from Alphabet Inc. (NASDAQ: GOOGL) and Tesla Inc. (NASDAQ: TSLA) have led to a decline in technology stock prices, attributed to AI bubble concerns and mid-year market weakness.
- Technical indicators suggest a potential market rebound, with quality tech stocks now trading at more attractive prices for long-term investors.
- Companies like Super Micro Computer Inc. (NASDAQ: SMCI), NVIDIA Corp. (NASDAQ: NVDA), and Micron Technology Inc. (NASDAQ: MU) present compelling investment opportunities amidst the sell-off.
The recent earnings reports from Alphabet Inc. (NASDAQ: GOOGL) and Tesla Inc. (NASDAQ: TSLA) have cast a shadow over the technology sector, leading to a decline in stock prices for the week. This downturn is partly attributed to concerns over an artificial intelligence (AI) bubble, alongside the typical mid-year market weakness and a shift in investor sentiment following a prolonged rally in tech stocks. As investors look to secure profits and explore other sectors, technology stocks have faced selling pressure, contributing to the observed price movements.
Despite this sell-off, the situation presents a silver lining for long-term investors. The appearance of a "hammer candle" formation in major ETFs like the S&P 500 Index ETF (NYSEARCA: SPY) and the Invesco QQQ ETF (NASDAQ: QQQ) on July 25 suggests a potential market rebound. This technical indicator, coupled with the current valuations, indicates that quality tech stocks are now trading at more attractive prices, offering opportunities for investors willing to look beyond the immediate volatility.
Super Micro Computer Inc. (NASDAQ: SMCI) emerges as a compelling option within the tech sector. As a leader in high-performance server technology, Super Micro Computer is well-positioned to capitalize on the increasing demand for data centers, a trend fueled by the growth in AI applications. Despite the recent market sell-off, the company's stock is trading below its 200-day moving average and at a forward earnings multiple of 32x, suggesting it is undervalued. This is especially noteworthy considering the company's impressive year-over-year revenue and earnings growth of 200% and 361%, respectively.
NVIDIA Corp. (NASDAQ: NVDA), despite facing concerns over recent insider selling, remains a standout performer. The company's stock has seen a remarkable return of over 470% in the last three years. NVIDIA's valuation might appear steep, but its significant revenue and earnings growth of 262% and over 500% year-over-year, respectively, underscore the company's strong position in the market and justify investor interest.
Micron Technology Inc. (NASDAQ: MU) also presents a buying opportunity, despite the challenges it faces, including fears of renewed trade tensions with China and increased capital expenditure forecasts. The stock's 81% year-over-year revenue increase and its current position, finding support at its April 2024 low, make it an attractive option for investors, particularly given the recent sell-off which is viewed as excessive.
In conclusion, the recent downturn in the tech sector, influenced by various factors including AI bubble concerns and seasonal weaknesses, opens up investment opportunities in companies like Super Micro Computer, NVIDIA, and Micron Technology. These companies are poised to benefit from long-term trends in AI and data center demand, making them worthy of consideration for investors looking to capitalize on the current market conditions.
Wells Fargo Updates Alphabet Inc. Price Target to $187
- Wells Fargo has increased the price target for Alphabet Inc. to $187 from $168, reflecting a positive outlook on Alphabet's AI investments and market position.
- Alphabet's shares were trading at $190.6, slightly above the new target, indicating market confidence in the company's future growth prospects.
- The company's focus on artificial intelligence (AI) is seen as a key driver for future growth, aligning with industry trends and investor interest in AI technology.
Ken Gawrelski of Wells Fargo recently updated the price target for NASDAQ:GOOGL, Alphabet Inc., to $187, a notable adjustment from the previous target of $168. This revision, announced on July 8, 2024, reflects Wells Fargo's refined analysis and outlook on Alphabet's stock performance. At the time of this announcement, Alphabet's shares were trading at $190.6, slightly above the new target, indicating a potential adjustment in the market's valuation of the company. Alphabet, the parent company of Google, is a major player in the tech industry, particularly known for its significant contributions and investments in artificial intelligence (AI), a sector experiencing rapid growth and transformation.
The importance of AI in today's economy cannot be overstated, with its early stages already demonstrating substantial growth and potential. Alphabet Inc. is at the forefront of this technological revolution, leveraging AI to enhance its services and create new opportunities for innovation and market leadership. The recent analysis by Wells Fargo, as highlighted by TheFly, suggests that Alphabet's strategic positioning and investments in AI are key factors considered in the revised stock price target. This is in line with the broader industry trend, where AI technology is becoming a critical element for companies aiming to maintain competitive advantages.
InvestorPlace's recent article underscores the significance of investing in AI stocks, pointing out the potential for substantial gains in the future. While Amazon is explicitly mentioned as a top contender in the AI space, Alphabet's pioneering role in AI development and application implies its strong potential to benefit from the sector's growth. This aligns with Wells Fargo's updated price target, suggesting confidence in Alphabet's ability to capitalize on AI market opportunities.
The AI industry's rapid evolution presents a unique investment opportunity, especially for companies like Alphabet that are leading the charge in AI innovation. With a market capitalization of approximately $2.36 trillion and a notable year-high stock price of $190.85, Alphabet's financial metrics reflect its robust position in the market. The company's strategic focus on AI not only enhances its product offerings but also positions it favorably for future growth and investor interest.
Given the current market dynamics and Alphabet's strategic investments in AI, Wells Fargo's revised price target of $187 seems to reflect a positive outlook on the company's ability to navigate the challenges and opportunities within the AI sector. As the AI market continues to expand, Alphabet's role as a key player in this space is likely to contribute significantly to its stock performance and appeal to investors looking for exposure to innovative technology and AI-driven growth.
Needham Reiterates Buy on Alphabet, Estimates Youtube's Value at $455-$634 Billion
Needham analysts reaffirmed a Buy rating for Alphabet (NASDAQ:GOOGL) with a $210 price target on the stock. Needham analyzed YouTube's potential value as an independent entity through three metrics: revenue ($530 billion), users ($455 billion), and engagement ($624 billion).
The analysts estimated YouTube's worth between $455 billion and $634 billion if traded separately, accounting for 20%-30% of Alphabet's current enterprise value.
The analysts suggested that if just 5% of YouTube's market cap ($27 billion) were separately tradable, it could increase Alphabet's share value by 8%, or $15 per share.
Alphabet Downgraded by Rosenblatt Due to Transitional Risks and AI Impact
Rosenblatt analysts downgraded Alphabet (NASDAQ:GOOGL) to Neutral from Buy, citing several transitional risks that warrant caution.
The investment bank highlighted concerns about the impact of AI on search, suggesting that AI Overviews might reduce search ad revenues. Additionally, there is growing evidence of Alphabet losing search market share to Bing.
The shift of search ad revenue to retail media networks is another concern, with companies like Walmart increasingly adopting strategies similar to Amazon.
Moreover, Amazon's aggressive push into video advertising, including making ads default on Prime Video and launching a strong upfront sales campaign in May, could pose a threat to YouTube's ad sales.
The analysts also noted the risk of Alphabet facing higher-than-expected capital expenditure due to competitive pressures in the AI space.
Alphabet Inc. Price Target Update and Key Insights
- Brent Thill of Jefferies has raised the price target for Alphabet Inc. to $215, indicating a potential upside of approximately 16.83%.
- Alphabet's advancements in AI and its role in the tech industry highlight its potential for long-term success and market leadership.
- The expansion of Waymo's driverless taxi service in San Francisco underscores Alphabet's commitment to innovation and leadership in emerging tech markets.
Brent Thill of Jefferies has recently adjusted the price target for NASDAQ:GOOGL, Alphabet Inc., to $215 from its current trading price of $184.03. This new target suggests a significant potential upside of approximately 16.83% for the stock. The adjustment, announced on Wednesday, June 26, 2024, and covered by TheFly, indicates a bullish outlook on Alphabet's future performance in the financial markets. Alphabet, a leading name in the tech industry, is renowned for its extensive advancements in artificial intelligence (AI) and its dominant position in internet technology, particularly through its search engine and various online services.
Alphabet's strategic deployment of AI tools across multiple sectors underscores its pivotal role in shaping the future of the tech industry. This move not only highlights Alphabet's innovative capabilities but also positions it alongside other industry leaders, like Taiwan Semiconductor, in the AI sector. Such advancements are crucial for investors looking to diversify their portfolios with AI stocks, as detailed in an analysis by The Motley Fool. Furthermore, Alphabet's inclusion in the "Magnificent 7" stocks to buy and hold indefinitely, as per InvestorPlace, reflects confidence in its growth-oriented business model, attractive valuations, and consistent long-term success.
The company's autonomous-vehicle subsidiary, Waymo, has also made headlines with the expansion of its driverless taxi service in San Francisco. This development, now open to the general public, marks a significant step forward in making autonomous transportation solutions more accessible. It demonstrates Alphabet's commitment to innovation and its potential to lead in emerging tech markets.
On the financial front, Alphabet's stock performance has been noteworthy, with a recent increase of $4.81, or approximately 2.68%, closing at $184.03. This trading session saw the stock reach its highest price in the past year at $184.29, indicating strong market confidence. With a market capitalization of about $2.28 trillion and a trading volume of 23.18 million shares for the day, Alphabet stands as a robust investment choice in the current market environment.
These developments collectively paint a promising picture for Alphabet Inc., reinforcing its status as a compelling investment opportunity. The company's strategic focus on AI, its successful expansion into autonomous vehicles, and its strong financial performance are key factors driving its optimistic outlook. As Alphabet continues to innovate and expand its reach, it remains a top pick for investors looking for growth and stability in the tech sector.
Alphabet Inc. (NASDAQ:GOOGL) Faces a Bearish Outlook Despite Strategic Investments in AI and Cloud Computing
- Wedbush analyst Seth Basham sets a bearish price target of $85 for Alphabet Inc., indicating a potential decrease of approximately 51.68% from its current price.
- Google's $2 billion investment in Malaysia for its first data center and Google Cloud region underscores its aggressive expansion into Southeast Asia, aiming to capitalize on the growing demand for cloud computing and AI.
- The launch of "Project Astra" highlights Google's advancements in AI, potentially opening new monetization avenues and positioning it as a superior investment option compared to competitors like Meta.
Alphabet Inc. (NASDAQ:GOOGL), the parent company of Google, is a global technology leader with a diverse range of services, including search engines, cloud computing, artificial intelligence (AI), and more. Recently, Seth Basham of Wedbush set a price target of $85 for GOOGL, indicating a significant decrease of approximately 51.68% from its current price of $175.9. This analysis, published on May 30, 2024, suggests a bearish outlook on the stock's future performance.
Google's strategic investment of $2 billion in Malaysia to establish its first data center and Google Cloud region highlights the company's aggressive expansion into Southeast Asia. This move is driven by the increasing demand for cloud computing services and data centers, a direct result of the rapid growth in the AI sector. The investment not only signifies Google's commitment to capturing the rising AI demand but also positions the company to leverage extensive datasets necessary for training AI models.
The introduction of "Project Astra," a personalized agent-like service, marks a significant advancement in Google's AI capabilities. This development is expected to open new monetization avenues for the company, potentially boosting its investment returns. Despite Meta's efforts to enhance its AI features across its communication platforms, Google's innovations in AI position it as a superior investment option, according to a recent analysis by Seeking Alpha. This comparison underscores Google's promising position in the AI race, suggesting that its latest innovations could lead to substantial growth.
Alphabet Inc.'s stock performance, with a trading price of $175.9 and a market capitalization of about $2.18 trillion, reflects the company's significant presence in the technology sector. Despite the bearish price target set by Wedbush, Google's strategic investments and advancements in AI indicate a strong focus on future growth and expansion. The company's efforts to enhance its global infrastructure and services, particularly in the burgeoning Southeast Asian market, demonstrate a proactive approach to capturing emerging opportunities in the AI and cloud computing spaces.
Alphabet’s Overweight Rating Maintained at Barclays
Barclays analysts reaffirmed their Overweight rating on Alphabet (NASDAQ:GOOGL) stock with a price target of $200. The analysts highlighted significant advancements in AI, particularly multi-modal products running efficiently on a single neural network with low latency, showcasing potential future trends.
The analysts noted that the introduction of effective voice inputs and voice/text/image outputs might encourage healthier technology usage, reducing prolonged screen time and extensive text input in favor of quick, actionable interactions. While the technology demonstrated by OpenAI (GPT-4) and Google's Project Astra is not yet ready for widespread use—requiring a smartphone upgrade cycle and other refinements—it remains highly promising. This technology could become mainstream as iOS and Android integrate AI capabilities into phones.
The analysts observed that despite the rise of new products like ChatGPT and smaller competitors such as Perplexity gaining substantial user bases, there is no significant evidence of Google losing web search query share. They suggested that AI products might complement existing services or are still too nascent to have a major impact.
Looking ahead, the analysts expect concerns about AI cannibalizing Google's core search business to intensify in the second half of 2024. This will likely be driven by new developments, including Apple potentially launching Siri 2.0 with OpenAI-powered capabilities and the emergence of more AI products from established companies like META.
