Key insights
- Mizuho reiterated an Outperform rating on Alphabet (GOOGL) with a $460 price target, recommending investors buy the after-hours pullback following mixed Q3 results. The analyst cited upside from Cloud segment TPUs, which are approaching core Cloud margins, as a key driver for potential EPS growth. Despite weaker search revenue, strong query growth and incremental AI Mode usage suggest a near-term headwind that may soon pass. Mizuho believes significant TPU revenue and margin are not priced into consensus estimates or the stock.
Investing.com -- Mizuho reiterated its Outperform rating and $460 price target on Alphabet and recommended buying the after-hours pullback following the tech giant’s mixed third-quarter results.
The stock is currently down around 11% premarket.
“We are buyers on the after-hours pullback in GOOGL shares, as we continue to see more aggregate EPS impact from upside to Cloud segment from TPUs than downside from lower search revenue,” analyst Lloyd Walmsley wrote.
Cloud revenue grew 103%, driven by core demand and scaling TPU revenue. Cloud margins rose to 36.2% from 35.6% in the second quarter, despite meaningfully higher TPU revenue.
Walmsley said this suggests TPU margins are approaching core Cloud margins, well above Mizuho’s prior 14% estimate.
He added that, on Mizuho’s fiscal 2028 estimates, this would imply about 13% upside to consolidated operating income and about 12% to GAAP EPS.
“We do not believe significant TPU revenue or margin is in consensus or the stock,” the analyst said.
Search was weaker. Revenue grew 12% excluding currency effects, missing Mizuho’s 13% estimate and the 15% consensus.
Walmsley noted that AI Mode monetization still lags traditional Search, creating a near-term headwind as it scales. However, query growth was the strongest in five years, and AI Mode usage is largely incremental.
“We suspect this will be the last cut in search estimates and see significant upside to Street Cloud segment EBIT,” he said.
Mizuho also flagged a tough margin setup heading into 2027, as Cloud faces higher depreciation and capacity costs. On the call, Alphabet said its TPU racks are sold to Broadcom, which then sells them to customers.
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