RBC Capital Raises Alphabet Price Target to $425

RBC Capital analyst Brad Erickson raised the price target on Alphabet (NASDAQ: GOOGL) to $425.00 (from $400.00) while maintaining an Outperform rating.

“GOOGL’s Q1 was rock solid.

Most positively: 1) Search beat the buy-side bogey growing 19% where management emphasized AIO and AI Mode continuing to grow engagement and opportunities to monetize – encouraging and a likely key contributor to gaining share vs. other LLM’s recently, in our view.

2) GCP hit its mark growing 63% (cloud growing significantly faster ex Workspace) and notably, backlog nearly doubled q/ q to $460B (now exceeds AMZN) with over half of that to be recognized next 2 years (can argue for an implied $175B exit rate end of next year vs.

AMZN’s current $150B). 3) GCP margins expanding to 33% from high- teens a year ago even as these AI revs inflect is key where investors have harbored concerns (& capex not raised ex-M&A).

3) Mgmt. called out TPU sales to customer data centers including the labs which only bolsters the GCP opportunity; speculated on since December, good to hear further confirmation where investors view ASICs as having potential to challenge for double digit percentage of the overall AI compute market.

4) Mgmt. emphasized its firm eye on ROIC when allocating excess compute as another qtr goes by where heavy AI investment is simply not adversely impacting the P&L given both the GCP and overall margin beat.

Raising ests & target moves to $425.

GOOGL has driver’s seat positioning in consumer AI with rising/dare we say meteoric optionality in enterprise/cloud which easily supports the multiple and allows for further compounding.”

This research note is reproduced verbatim from the issuing firm. Price Target never edits, paraphrases or alters analysts’ words — we only republish them in one place.