Google's operating income, EPS estimates at risk from capex spending: Baird
Baird analysts warn that Google's operating income and EPS estimates may be jeopardized due to increased capex spending ahead of its Q4 earnings report. Analyst Colin Sebastian noted potential risks to consensus forecasts, suggesting a possible 'sell-side reset' following Q3 earnings or before Q4 results. Despite a projected EPS of $0.84 on $23B revenue, rising capex could lead to lower GAAP operating margins, although Sebastian acknowledges potential revenue boosts from AI products. He maintains an Outperform rating and price target for Alphabet.
Google (NASDAQ:GOOG) (NASDAQ:GOOGL) is slated to report fourth-quarter results later this month, and investment firm Baird believes its operating income and earnings per share metrics could be at risk amid rising capex spending.
Shares rose 1.2% in midday trading on Monday.
"Looking ahead to the ramp in opex related to data center/infrastructure expansion, we continue to believe there is some risk to consensus operating income and EPS forecasts for Q4 and next year," analyst Colin Sebastian wrote in a note to clients. "As such, we ... believe a modest 'sell-side reset' is possible either post-Q3 earnings or into the Q4 reports."
A consensus of analysts expect Alphabet, the parent company of Google, to earn $1.84 per share on $86.23B in revenue for the coming quarter.
While Sebastian said that capex spending is likely to rise and result in GAAP operating margins coming in below consensus, he admitted he "may not be giving full-credit for potential revenue benefits of AI/Gen- AI products and services."
Sebastian has an Outperform rating and $200 price target on Alphabet.