Goldman Sachs Boosts Alphabet Target Price 4% on AI Growth

Goldman Sachs has raised its target price for Alphabet Inc. (GOOG.US) from $225 to $234 following the release of the company's robust second-quarter financial report. The investment bank believes that Alphabet's accelerated investments in artificial intelligence (AI) will drive long-term growth in its core businesses.

The latest financial report highlights strong performance in search, YouTube, and cloud services, which are expected to benefit from AI advancements. This strategic focus on AI is anticipated to enhance Alphabet's competitive edge and drive future revenue growth. The move by Goldman Sachs reflects a growing confidence in Alphabet's ability to leverage AI to bolster its core operations and maintain its position as a leader in the tech industry.

Goldman Sachs analysts emphasize that Alphabet's current and potential future computing domains, including AI/machine learning, personalization, and reducing application complexity, position the company favorably. The firm's increasing capital expenditures indicate a commitment to expanding its AI platform, with projected expenditures reaching $850 billion by 2025 and $1020 billion by 2026. Despite concerns about long-term returns, analysts remain optimistic, noting Alphabet's transition from AI infrastructure to platform and application commercialization.

Alphabet's multi-faceted AI strategy, including AI Overviews search functionality, Gemini, and multimodal search, is seen as a potential differentiator in an increasingly competitive landscape. The company's collaboration with OpenAI, a key player in AI development, further strengthens its position. OpenAI is often viewed as both a partner and a competitor in the AI field.

Regarding YouTube, Goldman Sachs expects that the performance of Shorts and subscription services will improve, helping the platform stand out against traditional media competitors. Meanwhile, Alphabet's cloud business is anticipated to benefit from the growing demand for generative AI in the medium to long term, although short-term capacity constraints may pose challenges.

Looking ahead, Goldman Sachs is closely monitoring two significant events: the anticipated ruling by a U.S. court on the search antitrust case by the end of August, and the launch of Google's Pixel phone on August 20. The Pixel launch is expected to provide more details on how Google's AI tools integrate with hardware and search products.