- Integrating AI elements into its core services – has invested over $100 billion in AI in the last 5 years
- digital ad spend trends have been strong through July – good for GOOGL/META
- aggressive cost cuts in January translate to margin expansion as growth has accelerated
After 5 straight quarters of operating profit declines, tonight Google is expected to return to profit growth. In the next 3 quarters, their EPS is expected to grow 9%, 26% and 47%. This is a combination of facing easier comparisons as well as growth in digital ad spend. 2022 was an advertising recession where companies pulled back significantly on their budgets; however, digital ad spend rebounded first and has shown strong trends throughout 2023.
Artificial Intelligence is top of mind and Google has been investing in AI since 2010 so this has been an area of development for the company for over a decade. It is now something investors can appreciate when they can use a tool like ChatGPT. There is some concern of a potential competitive threat from Microsoft’s Bing integrated with ChatGPT; but Google is the 800 pound gorilla in search with better algorithms and data sets. There is a reason why Google dominates search and they will use AI powered search – to deliver personalized results and allow users to use follow up questions to get even better/personalized results (and promoting richer and more visual content). This is even more attractive to advertisers as their ROI will increase and lead to more sales. AI is just adding to Google’s core search strength.
Are you bullish or bearish on Google?