After the "strongest quarter in twenty years," what other surprises can Google offer Wall Street?

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After concerns earlier this year over the positioning of artificial intelligence and antitrust reviews, Google’s stock performance has rebounded strongly thanks to the positive response to its Gemini AI products.

According to a new analysis released today by Morgan Stanley, 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 profit growth in 2026 and 2027.

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

Although market confidence has returned, the evolving competitive landscape is still a variable not to be overlooked. Especially as OpenAI takes more aggressive approaches in fields such as commercial search, Google still needs to prove that its product innovation can remain ahead. Whether the stock price can continue to rise in the future will depend on its ability to maintain business share in fierce competition.

New Growth Engines: AI Momentum in Search and Cloud Businesses

At the beginning of the year, investors were still uneasy about Google’s AI strategy and the U.S. Department of Justice’s antitrust litigation. But now, as the worst seems to be over, the narrative on Wall Street has shifted.

So far this year, Google’s stock has risen by 29%, double the increase of the S&P 500 over the same period, and its AI strength is regaining recognition from the market. Morgan Stanley’s analysis argues that if generative AI can help the company achieve “durably faster revenue growth” in search, cloud, and YouTube businesses, this trend will “further strengthen investors’ confidence” in its AI strategy.

The new $270 target price given by Nowak is about 22 times Google’s forecast 2027 EPS. Nowak said that this valuation multiple is about a 10% premium over its historical average of about 20 times, but this is entirely reasonable. The reason is that Google’s “faster pace of innovation and its emerging position as a generative AI winner” are key to supporting the premium, which is expected to bring more lasting growth to its core business.

Potential Risks: Commercialization Challenges from OpenAI

However, competitors represented by OpenAI’s ChatGPT are becoming “more aggressive” in terms of commercialization. For example, earlier this week, OpenAI launched a new product that allows users to shop directly in chat and reached a preliminary partnership with Etsy. However, Nowak also offered a hedging view, stating that Google’s “accelerated pace of product improvements will make it very difficult for ChatGPT to develop a truly differentiated product.”

The future direction of the stock price will largely depend on whether Google can withstand competition. Nowak pointed out that within the next 15 months, Google’s “(positive) durability or (negative) business share loss may determine whether its stock price will move toward a bull market or a bear market valuation multiple.”

In his model, the bull-case target price could reach $335, which is about a 26x P/E ratio based on optimistic earnings forecasts, implying 37% upside from current levels. In the bear-case scenario, the target price would be $180, about a 16x P/E based on pessimistic earnings forecasts, implying a 26% downside.

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