Google is making significant strides in the AI landscape, as demonstrated at its recent Gemini at Work event, where the company reported a remarkable 35-fold increase in usage of its Gemini generative AI platform. The event showcased 185 examples of AI integration across various sectors, including healthcare, automotive, and retail.
For instance, Volkswagen has incorporated Google Cloud’s AI into its myVW app, allowing drivers to access their owner’s manuals and ask questions like “how to change a flat tire.” Snap has also partnered with Google Cloud to enhance its My AI chatbot on Snapchat, leveraging Gemini’s capabilities to process text, audio, images, and video. Additionally, Warner Bros. has utilized Google Cloud’s Vertex AI platform for an AI-powered captioning solution, significantly reducing costs and improving accuracy for unscripted programming.
As generative AI drives growth in the cloud computing market, Google holds the third position, following Amazon and Microsoft. According to Synergy Research Group, global enterprise spending on cloud infrastructure services reached $79 billion in Q2, marking a 22% increase year-over-year. Amazon leads with a 32% market share, while Google is gaining traction with a 12% share as of Q2 2024.
Alphabet, Google’s parent company, recently reported robust growth in its cloud segment, reflecting heightened demand for AI solutions. In its Q2 financial report, Alphabet posted earnings per share of $1.89—exceeding the $1.84 forecast—and revenue of $84.74 billion, up 14% year-over-year, surpassing analyst expectations of $84.19 billion. The advertising segment, which includes Google Search and YouTube ads, continues to generate the largest share of revenue, bringing in $64.6 billion for the quarter—76% of total revenue—representing an 11% year-over-year growth.
Despite these advancements, the U.S. Justice Department has raised concerns about Google’s dominant position in search, which it fears could lead to an unfair advantage in AI development. An antitrust trial against Google began in early September, with potential restrictions being considered on the company’s use of website content for AI products.
In light of Google’s recent AI developments, analysts have offered mixed opinions on Alphabet’s future. Tigress Financial raised its price target from $210 to $220, maintaining a strong buy rating, citing ongoing strength in Google’s search and cloud sectors. The analyst expects Gemini to continue driving revenue and cash flow growth, indicating a potential return of over 36% from current levels.
Conversely, JMP Securities analyst Andrew Boone maintained an outperform rating with a $200 price target, expressing optimism following the Gemini event. Oppenheimer lowered its price target from $210 to $185 while keeping an outperform rating. The firm notes that uncertainties surrounding Google Search’s monopoly status may limit Alphabet’s price-to-earnings ratio to 20 times, particularly as Google earns 31% of its gross search revenue from Apple devices, while paying 36% for exclusivity.
As of September 26, Alphabet’s stock has risen 17.8% year-to-date, compared to a more than 21% increase in the S&P 500 Index.
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