Key insights
- UBS maintained a Neutral rating on Alphabet (GOOGL) due to cloud margin concerns, despite refining its revenue and margin modeling. While UBS's revenue estimates for Google Cloud are now above consensus, EPS estimates remain in line. The firm adjusted its backlog conversion methodology, pulling forward some revenue but also accounting for lower margins on chip sales and AI deals. The article also mentions an $80 billion stock sale including a Berkshire Hathaway investment to fund AI infrastructure, but the primary focus remains on UBS's rating and margin analysis.
Investing.com - UBS reiterated a Neutral rating on Alphabet Inc. (NASDAQ:GOOGL) shares with a $410 price target as the firm refined its methodology for modeling Google Cloud revenue and margins. The stock currently trades at $364.70 with a P/E ratio of 27.8, though InvestingPro analysis suggests the shares may be overvalued relative to its Fair Value estimate. The company maintains a "GREAT" financial health score, with 30 analysts recently revising earnings upward. For deeper insights, investors can access Alphabet’s comprehensive Pro Research Report, available for this and 1,400+ other US equities.
The investment bank updated its approach to analyzing Alphabet’s Performance Obligation backlog by separating it into core non-AI business, Vertex, and recent large contracts with Anthropic, OpenAI and Meta. The revised model pulls forward some backlog conversion into revenue, particularly from TPU chip sales, from 2028 into earlier periods.
UBS now projects Google Cloud revenue to rise approximately 24% in 2026 and 34% in 2027. The changes result in comparable period gross revenues moving up by roughly 5% and 10%, respectively.
The firm lowered its earnings per share estimates for Alphabet by about 1% for 2026 and 7% for 2027 to account for lower margins on chip sales and reduced margins on non-Vertex backlog conversion. UBS revenue estimates now stand approximately 7% and 16% above consensus for 2026 and 2027, while EPS estimates remain in line with Street expectations.
UBS cited ongoing debates around Google Cloud’s backlog-to-revenue conversion rate and the impact of chip sales and larger AI lab deals on profit margins as key factors in its analysis.
In other recent news, Alphabet Inc. announced a significant move with an $80 billion stock sale, including a $10 billion investment from Berkshire Hathaway. This capital raise is intended to fund investments in Alphabet’s AI compute infrastructure to meet increasing customer demand. In addition, Google, a subsidiary of Alphabet, has entered a three-year agreement with Voltus to unlock up to 100 megawatts of new electricity capacity, enhancing the PJM grid region’s capabilities. This deal involves utilizing flexible distributed energy resources to manage energy demand efficiently. Furthermore, Google has begun construction on its first data center in Sweden, which will create 100 direct jobs and expand its services in the region.
Wells Fargo has reiterated an Overweight rating on Alphabet’s stock, highlighting the company’s robust financial position to support its investment strategies. Analyst Ken Gawrelski from Wells Fargo expressed confidence in Alphabet’s cash flow and balance sheet, suggesting the equity raise might not be necessary for immediate financing needs. The analyst noted Alphabet’s substantial cash reserves and previous credit market issuances. These developments underscore Alphabet’s strategic efforts to bolster its infrastructure and expand its global presence.
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