Alphabet stock dropped 5% on Wednesday as investors digested its second-quarter results, which surpassed earnings estimates but fell short in other crucial areas.
The company reported earnings per share of $1.89, slightly above the estimated $1.85. However, YouTube’s ad revenue was weaker than expected at $8.66 billion, compared to the forecasted $8.95 billion. Additionally, capital expenditures were higher than anticipated, reaching $13.2 billion.
Despite the mixed results, Goldman Sachs analysts remain optimistic about Alphabet’s AI prospects. They raised Alphabet’s price target from $211 to $217, representing a 25% increase from Wednesday afternoon’s price of $172.80. The optimism is largely driven by Alphabet’s AI potential.
“While we cannot refute the continued investor debate around the future of search, we continue to believe that Alphabet is positioned as an AI-first company,” the analysts noted, highlighting the company’s ability to integrate AI tools into existing applications.
During Tuesday’s earnings call, investors expressed concerns about the return on heavy AI investments. Alphabet’s executives addressed numerous questions about monetizing AI initiatives, including AI-generated search result summaries and AI integration into its cloud business. They provided no specific numbers but emphasized the long-term benefits.
“AI’s integration into our cloud unit will be a significant driver over time,” said Alphabet CEO Sundar Pichai. He also mentioned that over 2 million developers are exploring these technologies.
Goldman’s analysts remain unfazed by the potentially long timeline for AI gains, expecting continued investor focus on the future of search, operating margin outcomes, and long-term investments in data centers and technical infrastructure to support AI growth.