Alphabet Inc. (NASDAQ:GOOG)(NASDAQ:GOOGL) shares fell Thursday despite reporting blockbuster second-quarter results, as investors and analysts zeroed in on the company’s rapidly expanding AI spending plans, with higher capital expenditure forecasts overshadowing strong growth in Search and Cloud.
Here are some key analyst takeaways:
- DA Davidson analyst Gil Luria reiterated a Neutral rating, while cutting the price target from $375 to $350.
- JPMorgan analyst Doug Anmuth maintained an Overweight rating, while reducing the price target from $460 to $420.
- Guggenheim Securities analyst Michael Morris reaffirmed a Buy rating and price target of $450.
- Needham analyst Laura Martin maintained a Buy rating and price target of $450.
- Rosenblatt Securities analyst Barton Crockett reiterated a Neutral rating and price target of $393.
Check out other analyst stock ratings.
Alphabet Analysts Say…
DA Davidson: Alphabet’s total revenue grew 23% year-on-year to $119.8 billion in constant currency terms, Luria said in a note. The company delivered "another strong quarter," with Google cloud revenue of $25 billion, he added.
Google cloud revenue growth accelerated to 82% year-on-year from the previous quarter’s 63%, driven by a surge in core cloud growth as well as ramping TPU system sales delivered to customer data centers for the first time in the quarter, the analyst stated. "While growth trends were encouraging, capex commentary suggests higher spend for longer," he further wrote.
JPMorgan: Results continued to show returns on Alphabet AI spend. Anmuth cited 82% cloud revenue growth and 17% Search growth. Google also recognized revenue from TPU sales for the first time in Q2, surpassing $1 billion, he added.
Management raised their capex spending guidance for 2026, from $180-$190 billion to $195-$205 billion, the analyst stated. "Despite efforts to ramp capacity faster, the environment remains supply constrained" and Google is relying on third-party capacity to bridge this gap as it grows its customer base, which could exert pressure on margins in the near term, he further wrote.
Guggenheim Securities: Alphabet delivered strong quarterly results across all key segments, Morris said. He added, however, that management raised its 2026 capex guidance by more than $10 billion at the midpoint.
Management again reiterated expectations of a "significant increase" in capex in 2027, the analyst stated. He expects Alphabet’s capex to reach nearly $350 billion in 2027, versus Street estimates of $265 billion.
Needham: Alphabet’s reported solid results, with revenues of $119.8 billion and non-GAAP earnings of $2.85 per share, Martin said. She added that the stock could remain under pressure, despite these strong results, due to:
- Higher capex guidance
- Negative free cash flows
- Rapidly rising expenses
- Commitments to third parties
"We believe GOOGL can NOT retain investors or talent unless its share price rises," and market reaction to the second-quarter release indicates that "Wall Street is not supportive of GOOGL’s choices," the analyst further wrote.
Rosenblatt Securities: Although Alphabet’s strong cloud revenue growth is positive, there is skepticism regarding the raised capex guidance, Crockett said. While Search remained stable, YouTube’s acceleration was in part due to the World Cup, and the company signaled that ad trends in both businesses could soften a bit in the next quarter, he added.
The 2026 capex guidance reflects around 120% year-on-year growth at the midpoint, and management expects 2027 capex to be "significantly" higher, the analyst wrote. Alphabet’s all-important cloud business has "outsized exposure" to a sector that is "evolving into something much more competitive than once envisioned," he further wrote.
Price Action
Shares of Alphabet had declined by 7.18% to $317.36 at the time of publication on Thursday.
Image: Shutterstock
Login to comment