Search hegemony shaken, antitrust storm intensifies: Why do Citigroup and Morgan Stanley still remain bullish on Alphabet?

According to the Zhitong Finance APP, recently, Citigroup and Morgan Stanley respectively released research reports on Google (GOOGL.US). Citigroup maintained a "Buy" rating on Google (GOOGL.US) with a target price set at $200, believing that Google's product ecosystem advantages and AI technology innovations will drive continuous growth in its search business. Additionally, Morgan Stanley also gave Google an "Overweight" rating with a target price of $185, stating that the current valuation reflects market concerns about its business, presenting an opportunity for upward revaluation.

Morgan Stanley believes that as of May 7, 2025, Google's stock price will be $151.38, corresponding to a price-to-earnings (P/E) ratio of only 15 times the expected earnings per share (EPS) of 10 for 2026, which is close to the bottom level of 2022. Based on this, Morgan Stanley set a target price of $185 for Google, indicating a 22% upside potential from the current stock price.

Citigroup, on the other hand, based on Google's 2026 GAAP EPS of $10.11, assigned a P/E ratio of 20 times, resulting in a target price of $200, which represents a 32% upside potential from the current stock price. At the same time, Citigroup emphasized Google's strong ecological barrier built by 15 products with over 500 million monthly active users, which further strengthens its confidence in Google's future performance.

In terms of financial performance, Citigroup expects Google's revenue and EPS to maintain stable growth from 2024 to 2027. The expected quarterly revenues for 2025 are $33.088 billion, $10.347 billion, $11.353 billion, and $11.988 billion, with EPS expectations of $2.81, $2.14, $2.21, and $2.43 respectively. The revenue growth rate for the entire year of 2026 is expected to be around 9%, with a GAAP EPS operating profit margin of about 30%, giving a 20 times P/E valuation, corresponding to a target price of $200.

In contrast, Morgan Stanley expects Google's operating profits for 2025-2027 to be $127.605 billion, $141.125 billion, and $157.231 billion, with net profits of $132.406 billion, $145.725 billion, and $161.131 billion respectively, and EPS of $10.79, $10.34, and $10.94. Based on a 10.9 times EV/NTM EBITDA valuation, a target price of $185 is given.

Regarding competitive advantages, Morgan Stanley pointed out that despite facing competition and macro pressures, Google is expected to maintain growth in search advertising revenue due to its scale and advantages. Its advertising project AdWords generates major revenue for the company through an auction model. Citigroup emphasized that Google has 15 products with over 500 million monthly active users and 7 products with over 2 billion monthly active users, which can continuously attract users to utilize search services. At the same time, Google's investments and innovations in the AI field, such as Gemini 2.5 and the Al Mode extended version, have enhanced user experience and ad relevance However, Google still faces numerous risks and challenges. For example, actions by competitors like Apple in the search field, as well as the emergence of new AI products like ChatGPT, pose potential threats to Google's search business. According to Citigroup data, in April 2025, Google's search share on the Safari browser declined, with a year-on-year drop of 120 basis points in the global search market share.

Apple executive Eddie Cue stated that due to the increased usage of AI products like ChatGPT (which has over 500 million WAUs and 20 million paid subscribers), Google's search traffic on the Safari browser experienced its first decline in over 20 years. Apple may also incorporate other AI providers into the AI search results options in Safari (although they may not become the default option), which further impacts Google's search business. Additionally, emerging AI search result services like OpenAI and Perplexity are rapidly rising, capturing market share from Google and presenting unprecedented challenges.

It is worth mentioning that Google is facing multiple antitrust investigations and regulatory pressures, which could adversely affect its business and financial performance. In the United States, courts have ruled that Google has engaged in illegal monopolistic behavior in the search market, requiring adjustments to its business practices. Furthermore, Google is under increasing scrutiny for its monopolistic power in advertising, handling of user privacy, and biases in AI products. In Europe, governments are also intensifying their scrutiny of tech companies, making the regulatory environment more complex.

Finally, the current economic uncertainty may impact demand in the advertising market, which in turn could affect Google's advertising revenue. The advertising business is one of Google's main sources of income, and fluctuations in the macroeconomic environment may lead companies to cut their advertising budgets, thereby affecting Google's advertising revenue growth.

Looking ahead, both investment banks are optimistic about Google's layout and long-term development potential in the AI field. Google's investment in AI technology will drive product and service innovation, with the potential to achieve breakthroughs in search, advertising, cloud services, and other areas, further consolidating its market position. However, Google must also contend with challenges from competition, regulation, and the macroeconomy to achieve sustained and stable development