Alphabet(US:GOOGL) Guotai Junan Securities·2024-07-25 06:01Investment Rating - The report assigns an "Overweight" rating to Google (GOOGL.US) [1][3]. Core Insights - Google's Q2 FY24 revenue and profit slightly exceeded expectations, driven by strong growth in search and cloud businesses, with AI being a significant growth driver [1][3]. - The company remains optimistic about the future of AI, expecting quarterly CAPEX to maintain or slightly exceed $12 billion in FY24 [1][3]. Revenue and Profit Performance - Google achieved Q2 FY24 revenue of $84.74 billion, a year-on-year increase of 14%, slightly above the market expectation of $84.37 billion [3]. - Adjusted EPS for Q2 FY24 was $1.89, up 31% year-on-year, also exceeding market expectations of $1.84 [3]. - Operating margin for Q2 FY24 was 32%, up 3.2 percentage points year-on-year, attributed to ongoing cost and expense control [3][8]. Segment Revenue Growth - Revenue from Google Services in Q2 FY24 was $73.9 billion, a year-on-year increase of 11.5%, with advertising revenue reaching $64.6 billion, up 11% [3]. - Google Cloud revenue for Q2 FY24 was $10.3 billion, a year-on-year increase of 29%, contributing $1 billion in operating profit [3][10]. Capital Expenditure and AI Investment - Capital expenditure for Q2 FY24 reached $13.2 billion, primarily driven by infrastructure needs, with expectations for FY24 quarterly CAPEX to remain at or slightly above $12 billion [3][12]. - The company believes that the risks of insufficient investment in AI far outweigh those of over-investment [3][12]. Financial Forecasts - Revenue forecasts for FY2024E-FY2026E have been adjusted to $349.5 billion, $383 billion, and $414.8 billion, respectively, with net profit forecasts raised to $94.6 billion, $107.3 billion, and $115.8 billion [3][13]. - The target price for Google has been raised to $208, with a P/E ratio of 24X for 2025, corresponding to a target market capitalization of $2.58 trillion [3][13].