As anticipated, Tech giant Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) delivered stronger-than-expected Q2 earnings. Thanks to the better-than-expected second-quarter performance, GOOGL stock rose 6% in after hours. Overall, the stock has gained 37% on a year-to-date basis (see graph below). Despite the recent price gains, Wall Street analysts have reiterated their Buy ratings and are upbeat about GOOGL stock. They see significant upside potential from the current level.
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JMP Securities analyst Andrew Boone and Jefferies analyst Brent Thill maintained a Buy rating on GOOGL stock post Q2 earnings. Further, Goldman Sachs analyst Eric Sheridan retained a Buy recommendation on GOOGL stock and sees solid upside potential. Sheridan raised his price target to $152 from 140 following the Q2 beat, representing a further upside potential of 24.38% from current levels.
While analysts are bullish about GOOGL stock, let’s understand the reasons behind their optimistic outlook.
Alphabet Impressed on Multiple Fronts
Alphabet impressed everyone with its solid Search and YouTube performance in Q2. Further, the ongoing strong growth in Cloud remains positive. Search remained the largest contributor to revenue growth. It came in at $42.6 billion, up about 5% year-over-year. During the same period, YouTube advertising revenues increased by approximately 4% to $7.7 billion.
Sheridan is upbeat about Search revenues for the second half of 2023. The analyst added that “demand trends remained stable in terms of advertiser budget and product iteration,” which should support Search revenues against easier year-over-year comparisons.
As YouTube is growing audiences and driving increased engagement led by connected TV screens, the segment’s performance improved sequentially in Q2. Further, the analyst sees a re-acceleration in YouTube’s performance in 2H23.
Alphabet’s Cloud revenues increased 28% year-over-year to $8 billion, reflecting growth across geographies, industries, and products. Sheridan noted that the analyst expects Cloud revenues to improve with AI (Artificial Intelligence) acting as a tailwind.
Is GOOGL Stock Expected to Go Up?
With 27 Buy and five Hold recommendations, Alphabet stock has a Strong Buy consensus rating. Analysts’ average price target of $136.60 implies 11.77% upside potential from current levels.
The acceleration of Search advertising revenue growth and stabilization in advertiser spending will likely support its financial performance in the coming quarters. As for the Cloud business, customers’ interest in its AI-optimized infrastructure and its aggressive investments will support growth.
While GOOGL’s revenues are expected to improve, its focus on reducing expenses and driving profitability will likely support its stock price.
