Morgan Stanley reaffirms Alphabet "Overweight" rating, target price raised to $395

JP Morgan published a research report indicating that Alphabet (GOOGL.US) reported very strong Q4 2025 results, with accelerated growth in search and cloud businesses, but capital expenditures will become the focus of market attention. The expected capital expenditure for 2026 is between $175 billion and $185 billion, far exceeding the market's highest forecast of $142 billion. The bank believes that the year-on-year doubling of capital expenditures comes from a strong foundation, including Gemini, which now has 750 million monthly active users and shows significantly higher user engagement; Google Cloud revenue accelerated to a growth rate of 48%, with backlog orders increasing by 55% quarter-on-quarter to $240 billion; search revenue growth reached 17%, while AI continues to expand market space.

With the earnings announcement, JP Morgan raised its revenue forecasts for Alphabet for 2026 and 2027 by 2% and 4%, respectively, and operating income by 3% and 6%, but free cash flow was lowered by 45% and 55%. Earnings per share forecasts were raised by 2% and 4%, with an expected EPS of $13.6 in 2027. The bank believes that investor discussions will revolve around a price-to-earnings ratio of 25 to 30 when EPS exceeds $14 in 2027. The bank reiterated its "Overweight" rating on Alphabet and raised the target price from $385 to $395