Citi maintains a "Buy" rating on Alphabet Inc. (GOOGL) despite lowering the target price slightly to $229 from $232, reflecting the impact of increased capital expenditures on profitability. The report highlights Alphabet's Q4 2024 results, where Search and YouTube ad revenues reaccelerated, with Search & Other revenues growing by 12.5% y/y, driven by strong performance in financial services, retail, and travel sectors. YouTube's ad revenue also saw a boost, partly due to increased political spending.
Alphabet's investment in AI and cloud infrastructure is a focal point, with 2025 CapEx projected to rise to $75 billion, a 43% increase y/y, to address cloud capacity constraints. This investment is expected to support sustained growth in search queries, particularly with AI Overviews now live in over 100 countries. "We are encouraged with increased query volumes such that the net result is likely more sustained Search growth going forward," Citi notes.
The report also mentions Waymo's expansion plans and cost efficiencies, with new markets like Austin and Atlanta set for 2025 launches. Despite these positive developments, Citi acknowledges the challenges posed by regulatory pressures and competition in the search market.
As of February 5, 2025, Alphabet's stock price is $191.14, down 7.38% from the previous close.