The Zhitong Finance App learned that before the US stock market on Thursday, the stock price of Google's parent company Alphabet (GOOG.US, GOOGL.US) plummeted 11% to 289 US dollars. Investors are focusing on the company's spending, free cash flow data, and the slowdown in search revenue, partly due to the decline in customer monetization rates under the AI model. Alphabet still expects total capital expenditure to be in the range of 1950 billion to 205 billion US dollars for the whole year, but once again warns that capital expenditure will increase dramatically in 2027.
Here are analysts' views on Alphabet's third-quarter results:
Morgan Stanley analyst Brian Nowak gave Alphabet an “additional” rating, with a target price of $375. He said, “Alphabet is not expensive. Based on after-market transaction prices, its price-earnings ratio is only 16 times our predicted 2028 earnings per share... If we consider the scale of TPU sales by third parties, the valuation may be even lower. However, we believe that the valuation multiplier will depend on innovation in the search business, the scaling of next-generation intelligent agent products, and the ability to continue to drive revenue growth during the transformation process. This is because third-party TPU sales will lower the overall valuation ratio. Alphabet released the latest Gemini smart agent to enterprise users on October 8, and plans to bring the same Gemini smart agent experience to consumers later this year, first targeting the 1 billion users of Gemini apps.”
Bank of America analyst Justin Post gave Alphabet a “buy” rating, with a target price of $380. He said, “We acknowledge that the search business faces short-term risks, but Google's strong performance in AI traffic, outstanding execution in past technology transformation, and competitive advertising platform growth give us confidence to handle this cycle. Google's next-generation Carbon LLM is leading the way in the field of intelligence, and external demand for its TPU infrastructure continues to grow. We believe Google's position in the cloud and proxy AI sector is improving... Additionally, early layouts such as Waymo and quantum computing provided meaningful long-term options that have not yet been factored into the valuation.”
J.P. Morgan analyst Doug Anmuth gave Alphabet an “additional” rating, with a target price of $375. He said, “The sharp drop in Alphabet's third-quarter results and stock price shows that when a hyperscale data center operator spends hundreds of billions of dollars to build AI infrastructure, leading to negative free cash flow, and disappointing core business performance, its fault tolerance is very limited... We insist on the 'increase' rating because we believe the challenges facing Google's search business are surmountable rather than permanent structural problems; and Google Cloud will become a more critical part of the company's business, which is expected to drive Alphabet as a whole in 2027 and 2028 Revenue increased by approximately 30%.”
Susquehanna analyst Shyam Patil gave Alphabet a “positive” rating with a target price of $400. He said, “Alphabet's performance was mixed. The cloud business was strong, but the advertising business fell slightly short of expectations. We are still optimistic about its long-term prospects for three reasons: 1) the long-term growth of the advertising business; 2) the rapid expansion of the cloud computing business; and 3) the continued development trend of AI.”
Seeking Alpha analyst Kenio Fontes gave Alphabet a “buy” rating. He said, “I don't like this quarter's performance. In fact, I even agree with the market because I think the valuation downgrade is somewhat reasonable in this situation. But on the other hand, as a long-term investor, I'm still optimistic about Alphabet; this decline has raised the margin of safety... This is a company with a rich history in capital allocation. It has a wide moat, has achieved three-digit growth in the cloud business, has multiple layouts in the AI and semiconductor fields, and can generate 51 billion US dollars of operating cash flow within a quarter even in a quarter with weak performance.”
Seeking Alpha analyst Jonathan Weber said, “All in all, despite the acceleration of Alphabet's revenue growth, increased profit margins, strong growth in operating profit, etc., its valuation is still quite reasonable. In my opinion, this makes Alphabet extremely attractive right now. The market seems overreacting to Alphabet's three-quarter report, but for daring investors, this is an opportunity.”