After the "strongest quarter in twenty years," what surprises can Google still bring to Wall Street?

After experiencing concerns about artificial intelligence positioning and antitrust scrutiny at the beginning of the year, Google has seen its stock price return to strength thanks to the positive response to its Gemini AI product.

According to a recent analysis released by Morgan Stanley today, the key to injecting stronger momentum into Google's stock price will be optimistic earnings forecast revisions. Analyst Brian Nowak pointed out that the market is closely watching whether its search and cloud businesses can leverage AI momentum to deliver stronger earnings growth in 2026 and 2027.

In the report, Nowak raised his earnings forecasts for Google, increasing the expected earnings per share (EPS) for the fiscal year 2026 by 3% and for the fiscal year 2027 by 4%. Based on this, he significantly raised Google's target price from $210 to $270.

Although market confidence has rebounded, the evolution of the competitive landscape remains an undeniable variable. Especially as OpenAI adopts a more aggressive strategy in areas like commercial search, Google still needs to prove that its product innovation can continue to lead. Whether the stock price can continue to rise in the future will depend on its ability to maintain market share amid fierce competition.

New Growth Engine: AI Momentum in Search and Cloud Business

Earlier this year, investors were uneasy about Google's AI strategy and the antitrust lawsuit from the U.S. Department of Justice. However, now that the worst seems to be over, the narrative on Wall Street has shifted.

So far this year, Google's stock price has risen by 29%, which is double the increase of the S&P 500 index during the same period, and its AI capabilities are regaining market recognition. Morgan Stanley's analysis suggests that if generative AI can help the company achieve "sustained faster revenue growth" in its search, cloud, and YouTube businesses, this trend will "further strengthen investors' confidence" in its AI strategy.

Nowak's new target price of $270 is approximately 22 times Google's projected earnings per share for 2027. Nowak stated that this valuation multiple has a 10% premium compared to its historical average of about 20 times, but this is entirely reasonable. The rationale is that Google's "faster pace of innovation and emerging status as a winner in generative AI" are key to supporting the premium, which is expected to bring more sustainable growth to its core business.

Potential Risks: Commercialization Challenges from OpenAI

However, competitors represented by OpenAI's ChatGPT are becoming "more aggressive" in commercialization. For example, OpenAI launched a new product earlier this week that allows users to shop directly in chat and has reached a preliminary partnership with Etsy. However, Nowak also offered a hedging perspective, stating that Google's "accelerated pace of product improvements will make it difficult for ChatGPT to create a product with substantial differentiation." The future direction of stock prices will largely depend on whether Google can withstand competition. Nowak pointed out that within the next 15 months, Google's "(positive) persistence or (negative) loss of market share may determine whether its stock price trends towards a bull market or a bear market valuation multiple."

In his model, the target price in a bull market scenario could reach $335, equivalent to about 26 times the price-to-earnings ratio based on optimistic earnings forecasts, indicating a 37% upside from current levels. In a bear market scenario, the target price would be $180, based on a pessimistic earnings forecast of about 16 times the price-to-earnings ratio, indicating a 26% downside