Alphabet shares lose ground as ad sales results outweigh AI promise
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Alphabet (NASDAQ:GOOG) shares fell 3% in Friday as Wall Street assessed the state of the Internet giant's ad business and efforts in artificial intelligence technology.
On Thursday, Alphabet (GOOG) reported a fourth-quarter profit of $1.05 a share, on revenue of $76.05B while industry analysts had forecast the company to earn $1.20 a share on $76.5B in sales for the period ending December 31. Ad sales stood out during the quarter, as Alphabet (GOOG) said revenue from advertising dipped $59B from $61.2B a year ago.
Speaking on a conference call to discuss Alphabet's (GOOG) results, Chief Executive Sunday Pichai admitted that in recent months, the larger economic environment has become "more challenging", as evidenced by the decline in the company's ad sales. 
One area that showed particular weakness was YouTube ad sales, which fell by 8% over the fourth quarter in 2021. Raymond James analyst Aaron Kessler said Alphabet's (GOOG) results showed "advertisers pulling back more [in the fourth quarter]" with strength in retail and travel advertising being countered by softer demand from financial services customers. Kessler maintained his outperform rating, and bumped up his price target on Alphabet's (GOOG) stock to $119 a share from $116.
With advertising making up such a large part of Alphabet's (GOOG) total revenue, it should come a no surprise that a decline in ad sales would be in the sights of investors who are looking for stability from the company.
However, Pichai remained upbeat about Alphabet's (GOOG) opportunities in AI, which he called "the most-profound technology we are working on today," and said the company is in "great position as AI reaches an inflection point." Pichai highlighted Alphabet (GOOG) using AI to provide better experiences with YouTube, and improve advertising campaigns for its customers.
Analysts such as Brian Nowak, of Morgan Stanley, said that because of Alphabet's (GOOG) size and capital strength, the company is "positioned to drive the next generation of AI technologies." Nowak said that the impact of AI has already been seen in areas such as YouTube's recommendation engines and "potentially even more exciting and broader Google AI use cases are set to arrive in [the] coming months."
Nowak kept his overweight rating on Alphabet (GOOG) intact, and raised his price target on the company's stock to $135 a share from $125.
Analysts also liked what the company said about reining in costs, which includes 12,000 job cuts and tapping the brakes a bit on large-scale hiring plans, and how such moves could have a positive impact on Alphabet's (GOOG) overall business.
"We expect revenue growth to re-accelerate throughout 2023 and margins to improve on the back of better cost containment," said Truist Securities analyst Youssef Squali. "We (also) see Google at the forefront of AI research, and expect several initiatives to be rolled out shortly." 
Squali left his buy rating on Alphabet's (GOOG) stock unchanged, but trimmed his price target to $120 a share from $130.
Wall Street analysts have an overall strong buy rating on Alphabet's (GOOG) stock, while Seeking Alpha authors give the shares a rating of buy. Seeking Alpha's Quant System, which historically outperforms the stock market, gives Alphabet's (GOOG) stock a strong buy rating.