Alphabet Set To Gain From Google AI Innovation, 'Underappreciated' YouTube: Goldman Sachs
Goldman Sachs analyst Eric Sheridan maintains a Buy rating on Alphabet Inc, with a price target of $220. He believes Alphabet is well-positioned for the AI era, projecting Google's Search revenues to grow from $198 billion in 2024 to $318 billion by 2030, an 8% CAGR. YouTube is seen as an undervalued asset, with expected revenues reaching $99 billion by 2029, growing at a 13% CAGR. Despite a 1.8% decline in shares to $168.59, the overall outlook remains positive.
While investors seem concerned about the value of Alphabet Inc's GOOG GOOGL Google Search, the company appears "strategically well positioned for the AI era of consumer internet," according to Goldman Sachs.
The Alphabet Analyst: Analyst Eric Sheridan reiterated a Buy rating and price target of $220.
The Alphabet Thesis: Revenues generated by Google's Search & Other segment could grow from around $198 billion in 2024 to about $318 billion in 2030, representing an 8% CAGR (compounded annual growth rate), Sheridan said in the note.
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Although the Search segment could experience some margin pressure in the coming years, its current GAAP EBIT margin is around 55%, he added.
The analyst considers YouTube an "underappreciated consolidated asset inside Alphabet's structure with the potential for compounded growth (driven by a mix of ad supported an increasing tilt toward subscription supported revenue) and slightly rising operating margins."
YouTube's total revenues could grow at a five-year CAGR of around 13%, reaching about $99 billion in 2029, Sheridan said.
"On the back of our analysis, we assign a segment enterprise valuation for YouTube of ~$475 billion," he further wrote.
GOOGL Price Action: Shares of Alphabet had declined by 1.8% to $168.59 at the time of publication on Monday.
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