Morgan Stanley raises Alphabet's target price to $270 and upgrades search business growth forecast

Morgan Stanley's research report indicates that Alphabet (GOOGL.US) is already an "AI winner." At this stage, the focus is more on the upward adjustment potential for profit forecasts in its search and cloud businesses (GCP), as the accelerated growth of these two sectors will drive earnings per share in 2026 and 2027. Additionally, innovations in generative AI are driving growth in this business, which can further enhance investor confidence in the group as a beneficiary and driver of technology, thereby pushing up valuations.

The firm has raised its revenue forecasts for the search business in 2026 and 2027 by approximately 1% and 2%, respectively, now predicting year-on-year growth of about 10% and 8%. The advertising business is developing positively, and the firm notes that several innovations in Gen AI and AI agents will help drive sustained growth in the future. Furthermore, the download trend for the Gemini application is strong, and the group continues to expand Gen AI capabilities to its leading user base and data.

The firm estimates that for every 100 basis points increase in search rates next year, there will be a 1% upside potential for the target price; the target price has been raised from $210 to $270, maintaining an "overweight" rating