A recovery in the online advertising market has excited investors and pushed share prices of Google parent Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) to new highs over the last year. The stock is up 42% over the last 12 months, and analysts at Stifel Financial still see more upside.
The investment bank maintained a buy rating on Alphabet shares but raised its price target from $154 to $174. That's an 11% upside over the next 12 months from the current share price.
Why buy Alphabet stock
In December, the tech giant launched its new Gemini artificial intelligence (AI) large language model, which will lay the foundation for new AI services across Google Search, YouTube, and other products over the next several years. Wall Street is largely bullish on Alphabet's prospects because of its massive cash resources, years of investment in AI technology, and the potential for AI-powered Search to attract more users -- and therefore, grow advertising revenue.
However, new technologies could present new challenges for Alphabet. Microsoft's Bing beat Google to the punch last year by rolling out its own search features using generative AI. Competition concerns explain why Alphabet stock trades at a modest price-to-earnings ratio of 23 despite the company's history of double-digit percentage growth in revenue and profits.
But it won't be easy to bring down the search leader. Google Search attracts over 90% of online search traffic, according to Statista. Google Search converted this overwhelming dominance into $48 billion of revenue just in the fourth quarter, accounting for 55% of Alphabet's overall revenue.
The Wall Street consensus estimate pegs the company's earnings growth at 16% on an annualized basis over the long term. Stifel appears to be adjusting its price target in line with these expectations. Assuming the economy and advertising market continue to improve this year, Alphabet should report strong growth, providing the needed catalyst for the shares to reach the analyst's price target within the next year.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
