Google parent Alphabet Inc. (NASDAQ:GOOGL) remains in focus as investors weigh rapid Google Cloud growth, resilient Search monetization and a sharp increase in AI-related spending.
Yorkville Ives analyst Dan Ives maintained an Outperform rating on the stock with a $400 price forecast, pointing to Google Cloud as the key driver heading into third-quarter results while Search monetization and AI-related capital spending remain major investor debates.
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Cloud Carries The Growth Story
Ives said Wall Street expects Alphabet to report $128 billion in third-quarter revenue, up about 25% year over year, with $43.2 billion in operating income, a 33.7% operating margin and $2.99 in EPS.
He highlighted Google Cloud as the main growth engine. Consensus calls for Cloud revenue of $29.1 billion, up roughly 90% year over year, with operating income of $9.8 billion and an operating margin of 32.5%.
Ives said the key issue is how quickly Alphabet can convert its $514 billion Cloud backlog into revenue as new computing capacity comes online.
He also sees Alphabet’s custom AI chips as another growth opportunity. Management expects most revenue from existing chip agreements to arrive in 2027, making the year-end capacity ramp important for future growth.
Search Monetization Remains a Key Test
Ives said Wall Street expects Search and other revenue of $64.9 billion, representing mid-teens growth, while YouTube advertising revenue is projected at $11.4 billion, up about 11%.
Consensus also expects paid clicks to rise 8.4%.
He views continued paid-click growth alongside the rollout of AI-powered Search features as an important indicator that AI is expanding usage without materially eroding the economics of traditional Search.
Capex Could Reach $315 Billion In 2027
Ives said consensus expects Alphabet to spend $55.8 billion in capital expenditures during the third quarter and about $202 billion for 2026, within management’s $195 billion-to-$205 billion range.
He expects spending to move toward roughly $315 billion in 2027 as Alphabet builds capacity to serve contracted AI demand.
Wall Street also expects third-quarter free cash flow to remain negative at about $3.5 billion.
Ives views the elevated spending as a response to demand that Alphabet currently cannot fully serve rather than excess capacity. He expects the company to continue investing while Cloud demand exceeds available infrastructure.
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What Ives Wants To See
Ives said a strong report would include Cloud growth at or above 90%, continued backlog expansion, paid-click growth in the high-single-digit range and a clearer 2027 capital-spending framework tied to contracted demand.
He believes those trends would reinforce Alphabet’s position as a major beneficiary of enterprise AI spending.
GOOGL Price Action: Alphabet shares were up 1.37% at $325.02 at the time of publication on Wednesday, according to Benzinga Pro data.
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