By Aditya Soni
(Reuters) - Alphabet (NASDAQ:GOOGL) rallied more than 5% on Wednesday on signs its dominant Google Search business was faring well in an uncertain advertising market and remained unscathed in the face of competition from an AI-powered Microsoft (NASDAQ:MSFT) Bing.
The world's fourth most valuable firm was on track to add more than $80 billion to its market capitalization. Its shares have rallied 39% this year on the hype around artificial intelligence.
Wall Street analysts said the company's better-than-expected quarterly earnings showed the strong position of Google Search, steady growth in the cloud business and that Alphabet was well placed to compete with Microsoft in AI.
"Don't call it an AI comeback," said analysts at Jefferies, adding that Google has been an AI-first company for seven years.
Jefferies was among the 27 brokerages that raised their price targets, with several of them saying AI had started to contribute to Google's cloud revenue and helped drive a 28% growth in the quarter that widely surpassed expectations.
Alphabet has rolled out a series of AI products this year and revamped its search engine with the technology as it competes with Microsoft in a race to dominate the nascent field.
"Contrary to fears, AI everywhere is not, at least now, causing margin indigestion, or disrupting search. On the contrary, it appears to have potential to make Google a share-gainer in cloud services," Rosenblatt Securities analyst Barton Crockett wrote in a note to clients.
Microsoft also topped expectations on Tuesday, powered by growth in its Azure cloud unit - the part of its business best situated to capitalize on the booming interest in AI. But its shares were down 3.3% on worries that investments in the technology behind ChatGPT were driving up costs.
The median price target on Alphabet now stands at $145, which is nearly 19% higher than the stock's last close.
The company has a 12-month forward price-to-earnings ratio of 20.51, compared with Microsoft's 31.11 and the industry median of 15.29.