Morgan Stanley urges Google investors to rethink AI spending

Opening Paragraph

Morgan Stanley analyst Brian Nowak issued a new report on Alphabet (GOOGL) (GOOG), raising the price target to $210 with an Overweight rating, but warned that the company's massive AI capital expenditures may not yield expected returns. This follows Alphabet's raised 2026 capex guidance to $180-190 billion.

Rating Change

• Previous Price Target: $200
• New Price Target: $210
• Previous Rating: Overweight
• Current Rating: Overweight

Analyst's Rationale

Nowak believes Alphabet's heavy AI investments may not generate proportional returns due to intense competition from Microsoft and Amazon. He also noted that the market may overestimate short-term benefits of these investments.

Context

Alphabet recently raised its 2026 capex guidance to $180-190 billion, describing AI compute demand as "unprecedented." 2027 capex is expected to be even higher. Some analysts argue these investments are necessary to maintain leadership.

Conclusion

While Morgan Stanley remains bullish long-term, the report urges investors to monitor returns on massive AI investments, as expectations may not materialize as quickly as hoped.