Truist Securities has maintained its Buy rating on Alphabet’s (NASDAQ: GOOG) (NASDAQ: GOOGL) shares, anticipating robust first quarter results ahead of the company’s earnings announcement next week. The firm has also raised its estimates for Alphabet’s first quarter and full year 2024, along with increasing the price target to $170 from $158.

According to Truist, sustained healthy user engagement continues to drive increased ad spending across Search and Social platforms, with first-quarter growth aided by a recovery in pricing. Analysts, led by Youssef Squali, anticipate first-quarter results to slightly exceed consensus estimates, with cost containment leading to higher year-over-year margins.

Conversations with digital ad agencies suggest that the momentum observed in the fourth quarter persisted into the first quarter, particularly across Search and YouTube, supported by Brand and e-commerce initiatives.

While cautious commentary is expected for the second quarter of 2024 due to the macroeconomic environment, Truist remains optimistic about Alphabet’s performance. Despite underperforming peers year-to-date, the analysts see compelling valuation and potential for a dividend as positive factors.

Squali and his team revised their estimates based on several factors, including positive feedback regarding the resilience of Search ad spending in the first quarter and higher Cost-per-click (CPCs) likely linked to the Performance Max (PMax) campaign transition. They also noted higher growth at YouTube driven by YouTube Shorts and premium subscription offerings, as well as sustained momentum at Google Cloud supported by a growing volume of AI workloads.

Looking beyond the first quarter, Truist expects Alphabet’s recent AI breakthroughs and ongoing cookie deprecation to sustain positive momentum throughout fiscal year 2024. Discussions with industry participants suggest strong growth in U.S. Search spending compared to third-quarter 2023 levels, fueled by higher CPCs, increased consumer traffic, enhanced ad products, and an additional day in February due to the leap year.