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Last earnings season, Mark Zuckerberg, beaming in new curls and gold chains, drew Wall Street’s praise as Meta Inc. (META) showed that spending on AI dreams isn’t much of a drag. It was like he was walking in on his beleaguered Big Tech colleagues. Other businesses are also great.
For Meta, having a dominant advertising machine helped. And, as Alphabet (GOOG, GOOGL) reminded the market this week, the company has one as well.
When the business, which was delivered to Google’s parent company Alphabet on Tuesday, is doing well again, people don’t worry as much about all the zeros at the end of the money numbers walking around in the AI department. Not yet.
So far, that has resonated on Wall Street as analysts raise their price targets and investors scramble to get into the stock at a price that remains cheap compared to other tech platforms. .
If questions over return on investment have seemed to dampen the excitement around AI in recent months, Zuckerberg says Google may go beyond answering those questions. There wasn’t. After profits rose nearly 40% year-over-year and stock prices rose 5%, Wall Street seems to have forgotten why it was asked in the first place.
Google’s new CFO, Anat Ashkenazi, said on an earnings call that the company’s massive spending on AI infrastructure is not slowing down either. He pointed out that next year there will be further increases in capital investment. But Google’s better-than-consensus performance reinforced the view that the company is spending in the right way and winning new business in return.
“AI feels like an increasingly well-managed tailwind, improving advertising effectiveness, attracting cloud customers, and driving internal efficiency,” Jefferies analysts said in a post-earnings note. ” he wrote. “The outlook looks positive as consumers, advertisers and businesses continue to spend.”
Google’s strong position and array of business lines also ease concerns about a regulatory crackdown, even though the Justice Department has signaled a possible breakup of the company.
“We continue to believe that the structural risks to Google Search’s dominance are excessive, and the long-term outlook for the search business as Google navigates this transition period,” Wedbush analysts said in a note Wednesday. I’m optimistic about that.”
Even in the worst-case scenario of disrupting its search business, Google has another path forward, Jeffrey Wlodarczak of Pivotal Research Group wrote on Tuesday. Along with YouTube’s growth, the company’s massive expansion of its high-margin cloud business will drive solid financial growth, he said.
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