Wedbush analyst Scott Devitt has reiterated an Outperform rating and $205 price target on Alphabet Inc. GOOG ahead of earnings on Oct. 29. Here’s what you need to know.

What To Know: The Wedbush analyst released a new note on Wednesday calling Alphabet an “above average company” with a “below average multiple.”

While Alphabet’s advertising growth estimates for the quarter should be achievable, the potential for significant upside is limited, Devitt said. He pointed to mixed feedback from Wedbush’s third-quarter Digital Advertising Survey and recent data from Skai that showed a slowdown in Google Search growth.

Additionally, competitive pressure from Amazon.com Inc’s AMZN Prime Video ads and increased digital video ad inventory could weigh on YouTube’s performance, the analyst said. Devitt expects both Google Search and YouTube Ads to grow by 11.5% year-over-year, though YouTube’s growth may slightly miss consensus estimates, he said.

“Sentiment is mixed for Alphabet relative to mega cap internet peers as investors continue to weigh potential regulatory headwinds and the risk of generative AI to the search business,” the analyst said.

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Devitt also highlighted regulatory risks surrounding Alphabet, particularly the ongoing Justice Department case related to search. He said any major business model impact from these cases is likely years away, but noted that key dates are approaching.

While these challenges create headline risk, the components of Google’s adtech business under scrutiny represent less than 8% of gross revenue and just 2% of operating profit, Devitt said.

Despite these risks, Devitt remains optimistic about Alphabet’s transition to generative AI in search, which has shown promising user engagement. He believes this shift will create new monetization opportunities over time. With Alphabet trading at a valuation below the S&P 500 and its mega-cap peers, Devitt reiterated an Outperform rating heading into earnings next week.

“While we don’t view the upcoming quarterly report as a likely catalyst for Alphabet, we do think shares are attractive at current levels with shares trading below the market multiple,” the Wedbush analyst said.

GOOG Price Action: Alphabet shares were up 0.12% at $164.66 at the time of writing Thursday, according to Benzinga Pro.

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