Alphabet Inc. (NASDAQ:GOOGL) shares climbed more than 1% on Monday, recovering some ground after last week's steep post-earnings decline erased roughly $505 billion in market value in a single session. The rebound reflects a reassessment of the company's third-quarter results and its longer-term growth trajectory.
While Alphabet missed Wall Street's earnings-per-share expectations, the market's focus has shifted to the company's aggressive capital expenditure and the implications of its artificial intelligence (AI) investments. The third quarter saw free cash flow turn negative, a development that initially spooked investors. However, analysts have stepped in to defend the stock, pointing to robust demand for Google Cloud and AI infrastructure.
Analysts Maintain Bullish Stance Despite Price Target Cuts
Several Wall Street firms have reiterated positive ratings on Alphabet, even as they trimmed their price targets following the quarterly report. Wells Fargo's Ken Gawrelski kept an Overweight rating but lowered his target to $371 from $417, citing the growing penetration of AI Overviews, which could pressure paid search clicks through at least the first quarter of 2027. He also reduced his 2027 and 2028 operating income estimates by 3%, with earnings-per-share forecasts cut by 2% and 4%, respectively. Gawrelski expects stronger Google Cloud revenue, including sales of tensor processing units (TPUs), to help offset slower Search growth.
Cantor Fitzgerald's Deepak Mathivanan maintained a Buy rating while cutting his price target to $350 from $420. He noted that operating profit missed estimates by 7% and Search growth decelerated, but highlighted Google Cloud's growth of more than 100%, supported by demand for cloud services and TPUs. Mathivanan believes Alphabet remains well positioned across AI applications, models, and infrastructure.
Google Cloud Emerges as Key Growth Driver
Google Cloud has become a central pillar of Alphabet's investment narrative as demand for AI computing capacity surges. The division reported revenue of $30.7 billion, representing 103% year-over-year growth. Its backlog reached $561 billion, underscoring the scale of demand for its services.
BMO Capital's Brian Pitz maintained a Buy rating but lowered his price target to $425 from $480. Pitz highlighted increasing Search usage driven by AI features and argued that investors may be underestimating the future profit potential of Google's TPU business. He expects this segment to provide additional growth opportunities in 2027 and 2028.
Meanwhile, Citi raised its estimates for Alphabet's AI service revenue through 2028, citing accelerating demand from major cloud providers. These developments suggest that analysts continue to see opportunities for Alphabet to monetize its AI investments, even as the spending cycle pressures near-term cash flow.
Financing and Spending Remain in Focus
Alphabet's heavy investment in AI infrastructure remains a key concern for investors, particularly after capital expenditure pushed free cash flow into negative territory in the third quarter. The company also announced a 6 billion euro bond offering, signaling continued access to capital markets as it finances its spending requirements.
Despite these concerns, analyst sentiment remains broadly positive. According to TipRanks, Alphabet holds a Strong Buy consensus rating, based on 28 Buy ratings and four Hold ratings over the past three months.
This article is for informational purposes only and does not constitute financial advice.
