-- Alphabet's (GOOG, GOOGL) Q1 search and cloud results point to a stronger revenue contribution from generative AI, while rising investment costs and valuation concerns are shifting attention to margins, UBS Securities said Thursday in a report.
UBS raised ad-revenue estimates by about 1% for 2027 and 2% for 2028 and increased cloud revenue projections by 23% for 2027 and 7% for 2028. As growth expectations reset, the focus is turning to costs, with Google expecting 2027 to be another heavy investment year, the report said.
"It may take several quarters for the right level of 2027 capital expenditure to be added to estimates as Google does not generally give outer-year guidance, and that leaves potential for earnings per share print risks going forward," the report said. Given Google's elevated valuation, better risk-reward opportunities are seen in other internet megacap names, UBS said.
The firm raised GAAP diluted earnings-per-share estimates to $3.07 from $3 for Q2, to $3.07 from $3.06 for Q3, to $14.42 from $12.05 for 2026, to $15.78 from $13.96 for 2027, and to $16.70 from $16.15 for 2028.
UBS boosted its price target on Alphabet stock to $410 from $375 and maintained its neutral rating.
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