What Happened?
Shares of online advertising giant Alphabet (NASDAQ: GOOGL) jumped 2.6% in the morning session after several Wall Street analysts boosted their price targets on the company, citing optimism around artificial intelligence and a favorable economic outlook.
Morgan Stanley increased its price target on the shares to $205 from $185, pointing to potential revenue acceleration driven by generative AI. Similarly, Bank of America analyst Justin Post lifted his price target to $210 from $200, anticipating steady growth in Google's Search ad spending. Rothschild & Co also raised its target to $215.
This wave of positive sentiment came as investors eagerly awaited Alphabet's second-quarter earnings report. Notably, the earnings season got off to a strong start: More than 85% of the S&P 500 stocks that reported earnings exceeded expectations, according to FactSet data. This robust performance fueled positive sentiment, suggesting that corporate profitability remained resilient despite ongoing economic uncertainties.
After the initial pop the shares cooled down to $188.31, up 1.8% from previous close.
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What Is The Market Telling Us
Alphabet’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock dropped 8.7% on the news that the company reported underwhelming fourth-quarter results. Its total revenue was in line and its Google Cloud revenue missed, spooking some investors who had high expectations.
Given the secular trends surrounding Google Cloud along with its long-term profit margin potential, it was increasingly a sharp focus of investors and the market.
We note that Microsoft's Azure division also posted worse-than-anticipated results, signaling the market was overly optimistic about cloud computing for Q4.
On the brighter side, advertising revenue slightly exceeded expectations, driven by strong contributions from both Search and YouTube. It was also encouraging to see Alphabet beat analysts' operating income expectations during the quarter. In AI, the company earmarked $75 billion for capital expenditures in 2025—well ahead of Wall Street's estimates. It also rolled out its latest AI model, Gemini 2.0, to the public, aiming to expand its reach and stay competitive with rivals.
Zooming out, we believe this was a mixed quarter, with areas of underperformance weighing on shares that had reached 52-week highs just before this earnings announcement.
Alphabet is down 0.6% since the beginning of the year, but at $188.31 per share, it is still trading close to its 52-week high of $206.38 from February 2025. Investors who bought $1,000 worth of Alphabet’s shares 5 years ago would now be looking at an investment worth $2,421.
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