Alphabet's Profitability Unscathed Amidst Antitrust Lawsuits

Google's parent company, Alphabet Inc., may be facing antitrust lawsuits led by the U.S. Justice Department, but its profitability remains unscathed.

On October 24, expect more of the same as the search-engine giant, GOOGL, +0.99% GOOG, +0.89%, releases its third-quarter results.

Capitalizing on the digital advertising trend, participating in the growth of cloud technology, innovating with AI, benefiting from digital transformation, and leveraging a leaner cost structure are all ways that Alphabet is well-positioned, according to Monness Crespi Hardt analyst Brian White. However, challenges from regulations still persist, and White believes that the toughest times are still ahead.

In the third quarter, advertising spending on Google search experienced a 13% year-over-year acceleration due to improved pricing and the strength of YouTube, reports Cowen analyst John Blackledge. A survey conducted by an ad agency that spends over $1 billion on Google Search in the U.S. retail and e-commerce sector supports Blackledge's conclusion. Based on these findings, Blackledge has revised Google's price target from $150 to $160, maintaining an outperform rating.

Dominant Search-Engine Business Thrives Despite Market Downturn

The ongoing federal trial in Washington, D.C. has put the dominant search-engine business under the spotlight. Despite an overall downturn in the market, the company continues to generate billions of dollars in advertising sales. Moreover, Google has integrated generative-AI projects into its products, further solidifying its position as an AI leader.

According to Piper Sandler analyst Thomas Champion, Google is expected to emerge as an AI winner. Despite the onset of a trial initiated by the Department of Justice and increasing investments in infrastructure, Google's shares have outperformed expectations. Champion noted that AI is driving new opportunities, with Gen AI searches being a prominent aspect of core search functionality. The testing of Google's Duet AI assistant holds promise and could potentially drive additional revenue through its cloud services.

Alphabet, Google's parent company, recently experienced its highest stock close in over a year on October 11th, reaching $140.55. This marked the continuation of a strong rally throughout the month.

In a note to investors, Jefferies analyst Brent Thill expressed optimism about Google's future prospects. He emphasized the potential for continued growth despite a year-to-date gain of 58%. Thill attributed this potential to gradually accelerating ad revenue growth, supported by positive feedback and notable strength in search functionality. Additionally, he highlighted the positive impact that peak cost optimization and AI advancements will have on Google's cloud revenue, specifically in the years 2024-2025.