Alphabet's stock price fell on Wednesday, after the company released mixed results the day before. But Goldman Sachs analysts remain firmly bullish on the stock and optimistic about Alphabet's artificial intelligence opportunities.
Although Alphabet's financial report released on Tuesday exceeded expectations, it performed poorly in some key areas. Last quarter, the company's earnings per share were $1.89, with an expected $1.85. However, YouTube's advertising revenue was lower than Wall Street's expectations, at $8.66 billion, compared to the expected $8.95 billion. Last quarter's capital expenditures were also higher than expected, at $13.2 billion.
On Wednesday, Alphabet's stock price fell more than 5%. The stock has risen by about 25% this year, surpassing the nearly 18% increase of the tech dominated Nasdaq Composite Index.
Opportunities in Artificial Intelligence
After Alphabet released its financial report, Goldman Sachs raised its target price for the stock from $211 to $217 in a report, which is nearly 25% higher than the current price of $174.37.
Goldman Sachs stated that the optimistic sentiment mainly comes from Alphabet's artificial intelligence opportunities.
Although we cannot refute the ongoing debate among investors about the future of search, we still believe that Alphabet is positioned as an AI first company, "Goldman Sachs analysts pointed out, adding that Alphabet can further integrate its AI tools into its existing applications.
However, during Tuesday's earnings conference call, investors seemed concerned about whether Alphabet's massive investment in artificial intelligence could bring returns. Alphabet executives have answered many questions about the monetization of artificial intelligence, including search results generated by AI and the integration of AI with its cloud business.
Alphabet executives did not provide specific numbers, but emphasized that their artificial intelligence ambitions will generate long-term returns.
I believe that over time, this will ultimately become a huge driving force, "said Sundar Pichai, CEO of Alphabet, when talking about the integration of artificial intelligence and cloud computing departments.
Pichai also stated that AI products may soon generate revenue, rather than just helping businesses cut costs and improve efficiency, but he did not provide a timeline.
Goldman Sachs analysts are not concerned that artificial intelligence may take a long time to generate profits, but they say they expect investors to continue to focus on the future of Alphabet search, operating profit margin results, and long-term investments in data centers and technology infrastructure.