Wells Fargo Lowers Alphabet Price Target to $416

Wells Fargo analyst Ken Gawrelski lowered the price target on Alphabet (NASDAQ: GOOGL) to $416.00 (from $435.00) while maintaining a Overweight rating.

“Forecast 2Q Search growth +17% y/y likely better than feared for 2nd quarter in a row on back of still accelerating search session growth, total Google 7pts faster at +32% y/y and core Google (ex-Gemini) an extraordinary +28% y/y from just +8% y/y a year ago.

Google search engagement continues to accelerate, expanding use cases and taking the pressure off AI monetization.

Now see search revs +16% y/y for FY26 w/ high incremental margins offsetting depreciation for a +2% revision to Services OI.

Forecast 2Q Cloud revenue growth +72% y/y vs. street +65% on continued capacity-driven momentum w/ sustained healthy ~50% incremental margins.

Make adjustments to our backlog math that results in cuts to FY27 / FY28 Cloud Revs & OI but remain significantly above the street.

Expect external TPU sales to become meaningful contributor in 2H, likely beginning in 3Q.

Believe TPU sales to have gross recognition and help drive accel to ~150% 2H rev growth but w/ incremental margins dipping to low 30s.

Do not anticipate additional quantitative guidance on FY27 CapEx, where we sit at $290B vs. street at ~$250B, but we believe the market expectation today sits in the $300-$350B range.

We have yet to incorporate AI supply chain inflation into CapEx or cloud revenue forecasts but expect upward pressure on both.

We believe hyperscalers will be able to pass through supply chain inflation to customers and preserve attractive returns, but the market needs reassurance from the big 3 cloud providers.

Expect the new cloud capacity deal, layered into our projections at the full $2.76 billion quarterly run rate beginning in 4Q, to be utilized for Gemini model training and be recorded in the R&D line and Alphabet-Level Activities segment.

Do not expect this deal, with well-above market rates of an estimated $50B/GW, to be repeated.

See Google extending its capacity advantage, adding 9GW of compute in ’27 after 6GW in ’26, enabling robust growth in Cloud and Google applications and services. Estimates, rating and price target.

Raise 2Q:26 / 3Q:26 revs +0.5% / +1.0% to $118B / $137B and EPS to $3.02 / $3.16; FY26 revs +0.4% to $517B, EPS ~unch at $14.53.

Cut FY27 / FY28 revs 1.8% / 2.5% to $662B / $771B and EPS 4.2% / 3.6% to $15.14 / $18.13. FCF +5.9% to $47B in FY26 but flips to -$1B in FY27 (from +$8B), cut FY28 FCF 12.4% to $62B.

Maintain OW rating and adjust PT to $416 (from $435) on 27.5x our FY27 GAAP EPS of $15.14.”

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