Google Parent Alphabet Posts Strong Q1 Results, Analyst Highlights AI Payoff

Google parent Alphabet (GOOGL) reported smashing earnings and sales for the first quarter of Fiscal 2025, outperforming analysts’ estimates. Impressed by the results, Pivotal Research analyst Jeffrey Wlodarczak said in his Q1 review note that Google’s early artificial intelligence (AI) investments are beginning to pay off significant returns. The analyst maintained his “Buy” rating on GOOGL stock, with a close to Street High price target of $225, implying 41.3% upside potential from current levels. Google’s AI Investments Are Bearing Fruit During Google’s earnings call yesterday, the management reassured investors about its aggressive AI investments. The company noted that these efforts were fueling strong returns in Google’s lucrative advertising business. Not only that, Alphabet also reaffirmed its $75 billion capex guidance for Fiscal 2025, with a major focus on data center infrastructure. Additionally, Google raised its quarterly dividend by 5% to $0.21 per share and announced a new $70 billion share buyback program. GOOGL stock is trending higher, up 5.7% in pre-market trading at the time of writing. Remarkably, revenues from Google’s ad business jumped 8.5% year-over-year to $66.89 billion in Q1, beating analysts’ expectations of a 7.7% increase. However, the company did warn that “The changes to de minimis exemption will obviously cause a slight headwind to our ads business in 2025, primarily from APAC (Asia Pacific)-based retailers.” As illustrated in the chart provided by Main Street Data, Google’s ad revenues of $66.89 billion for Q1 was contributed by Google Search & Other, YouTube Ads, and Google Network. Analyst Highlights AI-Driven Growth in Ads Wlodarczak is highly encouraged by Alphabet’s deep moat in its core Search business, which has a 90% market share globally (ex-China). The analyst also believes that Google currently hosts the strongest AI platform and can leverage its position to make Google AI the default offering for handset manufacturers. Plus, Alphabet’s Google Cloud business is the third largest cloud compute provider, with a solid potential for future growth, again driven by AI opportunities. Also, its YouTube streaming platform is the largest in the world, while the Google Chrome browser has a 65% global market share (ex-China). Finally, Alphabet also boasts other attractive businesses such as Waymo and quantum computing. The analyst also acknowledged certain tailwinds, including intense competition in the Search market from AI-focused companies, concerns over investment returns on AI, recession risk, and most importantly, the looming court ruling of potentially breaking up Google’s business. Having said that, Wlodarczak believes that Alphabet’s “inexpensive valuation” more than offsets these risks and creates an attractive investment opportunity for GOOGL stock. Is Alphabet Google a Good Stock to Buy? Analysts remain divided on Alphabet’s stock trajectory. On TipRanks, GOOGL stock has a Moderate Buy consensus rating based on 27 Buys and 10 Hold ratings. The average Alphabet Class A price target of $195.09 implies 22.5% upside potential from current levels. Year-to-date, GOOGL stock has lost 15.8%. See more GOOGL analyst ratings Disclaimer & DisclosureReport an Issue