Google parent Alphabet has been among the so-called “Magnificent Seven” stocks that investors have been looking at favorably this year — but one analyst has some reservations. “There’s nothing structurally broken with Alphabet at all, [but] it is one of those names where the reasonable range of earnings and free cash flow outcomes is just a little bit tighter than it is at Meta or at Amazon,” Morgan Stanley equity analyst Brian Nowak told CNBC’s ” Street Signs Asia ” on Wednesday. Speaking at the investment bank’s Asia-Pacific Summit 2023 in Singapore, he said that Alphabet has “less significant upside estimates.” “Alphabet is slowing down headcount growth, so you are seeing incremental discipline come through the model, but it’s happening at a slower rate than what you’re seeing at Meta or at Amazon,” he added. Like Alphabet, Meta Platforms and Amazon are also on the list of so-called Magnificent Seven stocks. The other companies are Apple , Microsoft and Nvidia . Touching on Alphabet’s foray into the artificial intelligence space, Nowak noted tools such as Bard — a chat-based tool on Google — are “not coming out as quickly.” “They’re taking I think, an appropriately slow pace of rolling out new tools, rolling out Gemini and rolling out these products that can drive faster [adoption],” he explained. Google’s Gemini uses large-language models to do things like power chatbots and summarize or produce text. The way Nowak sees it, Gemini could be a “game changer” once it is launched, possibly in 2024. “It integrates all of Alphabet’s search data, YouTube data, that, we think, could be the first sign of changing the way we search, rolling out the potential for a generative AI assistant to help you shop for travel, help you shop for groceries … that, we think ultimately will lead to lower friction in offline to online wallets, faster spending moving online, and faster structural online advertising growth,” he said. Alphabet’s stock is up around 50% in the year to date. GOOGL YTD mountain Year-to-date shares of Alphabet Morgan Stanley has cut its target price on Alphabet by around 3%, citing expectations of higher operating expenses and a dip in revenue from key segments. The investment bank continues to be overweight on the tech giant but now has a price target of $150 — giving it upside of 11.4% from its close on Nov. 15. Its previous target price was $155. “Our 2024 revenue estimates [has fallen by] 2%, driven by lower YouTube, Cloud and Network growth. Our 2024 operating expense forecast increases slightly [by] 60 basis points, primarily due to higher depreciation expenses and to a smaller extent higher SBC (stock-based compensation),” Morgan Stanley’s analysts led by Nowak wrote in an Oct. 25 note to investors. The bank’s bull-case price target for Alphabet of $190 would encompass “better than expected expense discipline and share repurchase leading to multiple expansion and higher earnings power.” Meanwhile, its bear case is reflected with a price target of $90 and would follow a slowdown in global ad growth and margin pressures. Of the 56 analysts covering Alphabet, 82% have a buy or overweight call on the stock, at a mean target price of $152.77, according to FactSet. That gives the stock an upside of around 13.5% from its Nov. 15 close. — CNBC’s Isabella Lok contributed to this report.
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