Analysts at broker Mizuho believe Alphabet (GOOG:NASDAQ) faces a tricky end to the year as growth clouds hover over its Google Cloud computing business.

‘For cloud, our AWS [Amazon Web Services] case study of cost optimisation indicates that Google Cloud’s revenue growth could further decline in the foreseeable future, leading to downside versus Street expectations’, the analysts wrote in a note to clients.

Mizuho said it came to the conclusion after going through key operating metrics at the company. The analysts also see pressure building on operating costs and margins given ongoing investment at the search engine giant.

Alphabet has been investing heavily in its AI Bard app / Image source: Adobe

‘We believe consensus has not fully reflected headwinds related to NFL Sunday Ticket licensing costs and potential legal expenses in 4Q 2023’, Mizuho wrote, while margin expansion for full year 2024 (to Dec) could be ‘limited given continued investment in AI’, they added.

As a result, Mizuho believes there could be potential negative earnings revisions.

STRONG WALL STREET BACKING

Analyst consensus remains firmly behind Alphabet as a long run investment, and even Mizuho echoes that overall belief, acknowledging that the fundamentals remain intact for the company over the long-term.

Koyfin data shows 44 of the analysts that cover the stock remain firm buyers, while the other 10 take a wait-and-see approach with hold ratings on the shares. Not one analyst recommends selling the stock, including Mizuho, which is still telling clients to buy.  

The average target share price of the 54 analysts is $154.49, implying 18% upside to the current $130.63 stock price.

Alphabet is due to report its fourth quarter 2023 in February, with consensus pointing to $1.60 earnings per share on $85.2 billion revenue.

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