Tech giant Alphabet (NASDAQ:GOOGL) delivered stronger-than-expected Q3 earnings. However, its stock fell about 6% in Tuesday’s after-hours trading, as investors reacted to the slowdown in GOOGL’s Cloud business. Despite the deceleration in the growth rate, Goldman Sachs analyst Eric Sheridan reiterated his bullish outlook on Alphabet stock. Further, the analysts’ consensus rating suggests a Buy.
Before we move ahead, it is important to highlight that most of the recommendations and price targets for Alphabet stock were issued before the Q3 earnings announcement. Thus, investors can expect a revision in price targets for GOOGL stock.
With this backdrop, let’s look at what the future holds for GOOGL shareholders.
Will GOOGL’s Cloud Segment’s Growth Reaccelerate?
Alphabet’s Cloud segment’s top line increased by 22% year-over-over, decelerating from the 28% growth it registered in the Q1 and Q2 of the current Fiscal year. Management blamed lower consumption for the moderation in growth, as enterprises continue to optimize their spending amid a challenging macro backdrop.
Nonetheless, Google Could Platform revenues remain strong. Moreover, the company is integrating AI (Artificial Intelligence) capabilities across a wide range of Cloud products and services. Further, it remains the only large cloud provider with a unified platform to analyze structured and unstructured data, which is a competitive advantage over peers and is expected to drive more customers to its platform.
The company highlighted that over 60% of the world’s 1,000 largest companies are Google Cloud customers. Further, Google offers advanced AI-optimized infrastructure to train and serve models at scale, which is driving Generative AI startups towards Google Cloud.
Overall, with its aggressive investments and the potential benefit of AI solutions, including infrastructure and services, Google sees strong growth potential ahead for its Cloud business.
Is Alphabet Stock Expected to Rise?
While Alphabet stock dropped during yesterday’s extended trading session, Goldman Sachs analyst Sheridan made optimistic comments. The analyst said he has a “more constructive” view over GOOGL’s Q3 earnings than the after-hours stock performance suggests. Sheridan pointed to the robust performance of GOOGL’s core revenue and service margins as reasons for his bullish outlook.
It’s worth noting that Alphabet’s stock has already gained more than 57% year-to-date, which is why analysts’ average price target shows a limited upside potential. GOOGL stock has received 28 Buys and five Holds for a Strong Buy consensus rating. The analysts’ average price target of $152.27 implies 9.7% upside potential from current levels.
