Goldman Sachs Maintains Buy Rating on Alphabet and Raises Target Price to $400

Overview

This is a Goldman Sachs company research review of Alphabet Inc.'s Q4'25 results. The report's core view is that Alphabet continues to expand AI infrastructure and product investment while maintaining strength in its core Search business, accelerating Google Cloud growth on enterprise AI demand, and sustaining resilience in subscriptions and devices. Goldman Sachs believes that although the sharp increase in capital expenditure will create margin and cash flow pressure, the company still has the conditions to expand its industry leadership across consumer and enterprise computing scenarios.

Core views

The report maintains a positive view on GOOGL. First, the Search business has not shown clear public signs of being materially disrupted by AI agents and new platforms, with query growth and monetization remaining solid. Second, Google Cloud's revenue, backlog, and large-customer signings exceeded expectations, supporting visibility into medium-term revenue growth. Third, management continued to outperform expectations in operating profit for the Services and Cloud businesses, showing that growth investment and margin management can still proceed in parallel. Fourth, Waymo's financing and Alphabet's lead investment strengthen the commercialization potential of the autonomous driving business within Other Bets. Fifth, YouTube Ads and Network are near-term blemishes, but the report believes the shift toward subscriptions may be positive for consolidated revenue growth.

Analysis framework

Goldman Sachs updated its rating and target price mainly based on the variance between Q4'25 actual results and Goldman Sachs forecasts as well as market consensus, management guidance and commentary, changes in segment revenue and operating profit, revisions to 2026-2028 earnings forecasts, and EV/GAAP EBIT and EV/FCF-SBC valuation frameworks.

Methodology notes

• Valuation methodsEV/GAAP EBIT and EV/FCF-SBC blended valuation

  The 12-month target price is derived from an equal-weighted blend of two valuation methods

  The $400 target price is based on applying 26.0x EV/GAAP EBIT to NTM+1 year GAAP EBIT and applying 50.0x EV/FCF-SBC to NTM+4 year FCF-SBC discounted back three years at 12%, with each method weighted 50%.

• factor_profileGS Factor Profile

  Comparison of growth, financial returns, valuation multiples, and composite factors

  This framework compares the stock's percentile rankings in growth, financial returns, valuation multiples, and composite score within Goldman Sachs' coverage universe and peer group, to support investment context assessment.

• m_and_aM&A Rank

  M&A probability score

  Alphabet's M&A Rank is 3, indicating a relatively low probability of being acquired and typically not serving as an important component of the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• GOOGL.US

  Covered company stock

  Strengths

  Stable Search business, high Google Cloud growth, intensive AI product launches, Services and Cloud operating profit stronger than expected, and expanded scale of paid users in the subscription business.

  Weaknesses

  YouTube Ads growth below expectations, Network revenue decline, and 2026 capital expenditure significantly higher than the market had previously expected.

  Comparison

  Q4 net revenue, Search & Other, and Google Cloud revenue were above Goldman Sachs and consensus expectations; GAAP EPS was also above expectations, but GAAP EBITDA and overall operating profit were below some expectations.

  Risks

  AI competition, disruption to Search monetization, migration in media consumption, capital expenditure dragging on margins, insufficient shareholder returns, regulatory scrutiny, and macro risks.

• Google Cloud

  Alphabet's key growth business

  Strengths

  Q4 revenue grew 48% YoY, annualized revenue scale was approximately $70bn, backlog rose to approximately $240bn, and enterprise AI demand was strong.

  Weaknesses

  Cloud infrastructure expansion requires continued capital investment, and future margins depend on utilization, pricing, and monetization of AI workloads.

  Comparison

  Q4 Google Cloud revenue was 5.5% above Goldman Sachs' expectation and 8.5% above consensus; operating profit was 38.0% above Goldman Sachs' expectation.

  Risks

  AI compute supply-demand mismatch, intensified competition, slowing customer demand, or capital expenditure returns below expectations.

• YouTube Ads

  Component of Alphabet's advertising business

  Strengths

  YouTube subscriptions, Premium/Music, TV, and Sunday Ticket still have momentum, and management believes user migration toward subscriptions is favorable for consolidated revenue growth.

  Weaknesses

  Q4 YouTube Ads growth was below Goldman Sachs and market expectations, affected by a high base from Q4'24 political advertising and user migration toward subscription products.

  Comparison

  Q4 YouTube Ads revenue was $11.383bn, below Goldman Sachs' $11.834bn and consensus expectation of $11.826bn.

  Risks

  Advertising budget volatility, changes in media consumption habits, and changes in the mix between subscription and advertising revenue.

• Waymo

  Autonomous driving business within Alphabet's Other Bets

  Strengths

  Alphabet confirmed and led a new funding round, potentially accelerating Waymo's go-to-market.

  Weaknesses

  Other Bets revenue scale remains small, and Q4 Other Bets revenue was below expectations and declined YoY.

  Comparison

  Other Bets Q4 revenue was $370mn, below Goldman Sachs' $420mn and consensus expectation of $430mn.

  Risks

  Pace of autonomous driving commercialization, regulation, safety incidents, capital requirements, and uncertainty around the path to profitability.

Key data

• RatingBuyGoldman Sachs maintains its Buy rating.
• 12-month target price$400Raised from $375 to $400.
• Current price$333.04Price listed in the report, corresponding to approximately 20.1% upside.
• Market capitalization$4.1trDisclosed in the report's key data.
• Enterprise value$4.1trDisclosed in the report's key data.
• Q4 Google Search & Other revenue growth+16.7% YoYAbove Goldman Sachs and market consensus expectations.
• Q4 Google Cloud revenue growth+48% YoYAbove Goldman Sachs' expectation of approximately +40%.
• Google Cloud backlogApproximately $240bnUp approximately 158% YoY, with approximately 50% expected to be recognized over the next 24 months.
• Q4 YouTube Ads revenue growth+9% YoYBelow Goldman Sachs and market expectations, partly affected by a high base from U.S. election advertising.
• 2026E revenue$407.301bnGoldman Sachs' updated net revenue forecast.
• 2026E GAAP EPS$10.66Previous forecast was $10.68.
• 2026E capexApproximately $183bnCapital intensity is approximately 45% of the revised 2026 revenue forecast.

Impact & implications

The report's investment implication is that market concerns about Alphabet's AI risks have eased, and the key going forward is whether the company can use AI product innovation, infrastructure scale, and cost advantages to sustain momentum in Search and Cloud. The target price increase indicates that Goldman Sachs has incorporated strong fundamentals and higher long-term growth visibility into valuation, while also acknowledging that the capital expenditure cycle will pressure near-term free cash flow and margin flexibility.

Risks

• Intensifying competition in product utility and advertising budgets.
• AI agents or other new computing entry points may affect monetizable Search traffic.
• Changes in media consumption habits may affect YouTube Ads and Network advertising businesses.
• High-intensity AI infrastructure investment may keep operating margins below forecasts for longer.
• Future incremental shareholder returns may be insufficient.
• Regulatory scrutiny and changes in industry rules may alter business model prospects.
• Global macro conditions and fluctuations in growth-stock risk appetite may affect valuation.

What to watch

• Whether actual 2026 capital expenditure remains in the $175bn-$185bn range or higher.
• The impact of products such as AI Mode and AI Overviews on Search query length, frequency, and advertising monetization.
• The pace at which Google Cloud backlog converts into revenue, and the sustainability of large enterprise AI orders.
• Whether YouTube Ads reaccelerates after the high base from political advertising, and whether the subscription business continues to expand.
• Whether operating margins in the Services and Cloud businesses can offset rising D&A and infrastructure costs.
• Waymo's commercialization pace and regional expansion progress after financing.
• The impact of disclosures related to regulation, antitrust, and investment banking relationships on market sentiment.