Mizuho Financial predicts that Alphabet will significantly benefit from the robust growth of its Google Cloud and Tensor Processing Unit (TPU) segments, suggesting current market valuations are too low. The investment bank has raised its 12-month price target for Alphabet stock to $460 from $420, implying an 18% potential upside.
Underestimated Cloud and Hardware Potential
Analysts at Mizuho noted that the market appears to be significantly underestimating the revenue and operating income potential of Google Cloud over the next two years. According to analyst Lloyd Walmsley, analysis of recent cloud backlog data, combined with hardware sales estimates, suggests the Cloud segment's performance will surpass current street estimates.
Key Forecasts and Projections
- Google Cloud Revenue: Mizuho forecasts that Google Cloud revenue will grow by 70% year-over-year by the end of 2026. This projection exceeds the current consensus estimate of 58% growth.
- Hardware Sales: The bank anticipates that hardware sales, particularly those involving TPUs designed for AI applications, will generate profit margins comparable to traditional compute rental businesses.
Market Sentiment and Stock Performance
Mizuho's positive outlook aligns with broader Wall Street sentiment. Data from LSEG indicates that 53 out of 61 analysts covering Alphabet currently maintain a 'buy' or 'strong buy' rating. In recent trading activity, Alphabet shares have seen an increase of over 29% within the last month.