Google parent Alphabet Inc., which has been beating the AI drum for years, can now harness the technology to navigate the current challenging macro environment, say analysts.
reported fiscal fourth-quarter results after market close Thursday, missing slightly on revenue and earnings. The company’s stock fell 3.4% before market open Friday.
In a note released Friday JPMorgan analyst Doug Anmuth wrote that AI is reaching “an inflection point” at Alphabet. “Amidst a challenging operating environment, we’re encouraged by upcoming AI products & what feels like deeper commitment to rationalize the cost structure, though there is still some uncertainty around magnitude and timing,” he wrote.
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The analyst explained that AI has been integral to Alphabet’s business for many years, driving search and broader ads performance, while also supporting its cloud business. “After years of heavy investments along with recent competitive pressures, Google will roll out several new AI tools over the next few months,” he added, highlighting the company’s efforts to layer its LaMDA chatbot conversation technology across the company’s suite of products, specifically in search and in a possible standalone product. In addition to the company’s efforts to deliver AI tools to app developers, Anmuth also pointed to its plans to introduce AI-powered features to Workspace and “large language models” to Gmail and Docs. Large language models harness AI to parse vast quantities of natural language.
“Overall, we believe Google’s AI technology is likely best-in-class, but we also recognize that Google needs to carefully push forward innovations while maintaining its reputation for providing high quality service & accurate information,” Anmuth added.
JPMorgan maintained its overweight rating and $118 price target for Alphabet.
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Susquehanna Financial Group analyst group Shyam Patil described Alphabet’s results as “generally ok, considering the challenging macro” in a note released Friday. The analyst also highlighted the importance of AI for Alphabet as it moves forward.
“Management discussed efforts to use AI to improve measurement and ROI for search advertisers,” he wrote. “For YouTube, the company is working to grow Shorts engagement and monetization.” Designed to compete with the wildly popular TikTok, Shorts is Alphabet’s attempt to harness the popularity of short-form videos of 60 seconds or less.
Susquehanna Financial Group has a positive rating and $120 price target for Alphabet.
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Speaking during the conference call to discuss Alphabet’s fourth-quarter results CEO Sundar Pichai described AI as “the most profound technology we are working on today.” Google will make its LaMDA and PaLM models available in the coming weeks and months, he said. “This will help us continue to get feedback, test, and safely improve them,” Pichai added, describing them as “particularly amazing” for composing, constructing, and summarizing. “They will become even more useful for people as they provide up-to-date more factual information,” Pichai said.
Speaking during the conference call Alphabet’s CFO Ruth Porat said the company is also using AI to improve productivity for operational tasks, and boost the efficiency of its technical infrastructure.
Alphabet, like many big tech companies, has been in the layoffs spotlight in recent weeks. Last month the Google parent announced plans to cut approximately 12,000 jobs globally.
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Porat said the company is “meaningfully slowing” the pace of hiring in 2023 while still investing in priority areas. During the fourth quarter, Alphabet added 3,455 people, she said, with the majority of the hires in technical roles. “We will continue hiring in priority areas with a particular focus on top engineering and technical talent, as well as on the global footprint of our talent,” she added.
JPMorgan’s Anmuth did not expect to see more layoffs at the tech giant. “We do not anticipate another round of layoffs, and instead believe the company will be shifting employees internally from low-priority projects to higher-priority projects while exploring other options to reduce inefficiencies,” he wrote.
Of 52 analysts surveyed by FactSet, 48 have an overweight or buy rating and four have a hold rating for Alphabet.