From model and cloud to applications, "strategic positioning across the board"—Goldman Sachs: Google's "full-stack AI" advantages are fully on display.

From model and cloud to applications, "strategic positioning across the board"—Goldman Sachs: Google's "full-stack AI" advantages are fully on display.

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Goldman Sachs says that with its "full-stack AI" strategy covering everything from foundational models and cloud infrastructure to end-user applications, this tech giant is turning its technological advantage into tangible financial returns. They maintain a Buy rating and have raised their price target to $330.

On October 31, according to yAI news, Goldman Sachs stated in its latest research report that Google comprehensively demonstrated the competitive advantage of its "full-stack AI" layout in its third-quarter earnings report. Analyst Eric Sheridan pointed out that from foundational model development, cloud computing infrastructure, to consumer and enterprise applications, Google has established its position across all links of the AI industry chain. This vertical integration capability is turning into real financial returns.

According to a previous article in Wallstreetcn, Alphabet’s third-quarter total revenue exceeded $100 billion for the first time. Paid clicks and cost per click in its search business both rose 7% year-on-year, YouTube ad revenue grew 15% beating expectations, and Google Cloud’s 34% year-on-year growth rate and 23% operating margin were the biggest highlights this earnings season. Goldman Sachs noted that management’s comments on the competitive landscape for AI-driven workloads during the earnings call were positive, reflecting confidence in the long-term growth outlook.

Meanwhile, the company raised its 2025 capital expenditure guidance from approximately $85 billion to between $91 billion and $93 billion. Goldman Sachs accordingly adjusted its 2026 capital expenditure forecast to approximately $122 billion, a year-on-year increase of 32%, reflecting Google's continued heavy bets on AI infrastructure.

Goldman Sachs emphasizes that despite macroeconomic environment and digital ad demand remaining at the center of market focus, Google has addressed multiple doubts about the AI theme over the past 12 months, and management has shown a very positive attitude towards the scaling of its AI solutions among consumers and enterprises. In conclusion, Goldman Sachs maintains a Buy rating on Alphabet and raises the 12-month price target from $288 to $330.

Core Businesses Grow Across the Board, Cloud Stands Out as the Biggest Highlight

The report notes that Alphabet’s core businesses showed strong growth momentum in the third quarter. Search and other business revenues grew 15% year-on-year, and for the first time, management disclosed that paid clicks and cost-per-click both rose by 7% year-on-year, demonstrating broad-based growth across verticals. This dual growth dispelled market concerns that new AI-driven search formats might erode the profitability of traditional search.

YouTube’s combined business (ads + subscriptions) maintained growth momentum, with ad revenue rising 15% year-on-year, better than expected. Management specifically highlighted the increasing contribution of subscription services, revealing total subscription users across all services now exceed 300 million, with YouTube Music and Premium subscribers having a higher gross profit margin than ad users.

Google Cloud performed most outstandingly, and to Goldman Sachs was the core highlight of this earnings report. The division’s revenue grew 34% year-on-year, its backlog increased 79% year-on-year to $155 billion, and its operating margin reached 23%. Management disclosed that the number of $1 billion+ large orders signed in the first three quarters of this year had already exceeded the total of the past two years combined, showing robust enterprise AI demand.

Significant Increase in Capital Expenditure, Infrastructure Investment Intensifies

The company raised its 2025 capital expenditure guidance from about $85 billion to $91–93 billion, a significant increase. Management stated these investments will be allocated to servers (60%) and data centers (40%), mainly to support ongoing infrastructure construction. Although management has not yet given guidance for 2026 capital expenditure, Goldman Sachs has raised its estimate to around $122 billion, up 32% year-on-year.

According to Goldman Sachs, the surge in capital expenditure will have a dual impact on the financial statements. Third-quarter depreciation expense rose 41% year-on-year to $1.6 billion, and management expects it to accelerate slightly in the fourth quarter, reflecting continued cost pressure on the profit statement from high infrastructure investments. Goldman Sachs expects the company’s capital intensity will remain elevated in 2026 and may only gradually decline thereafter.

Despite the expanding scale of investment, the company is still balancing operational efficiency with growth investments and has maintained a standardized upward profit margin trajectory. Third-quarter GAAP operating margin was 35.7%, with the full-year margin expected to stay around 38%, and a further increase to 39.5% and 39.6% in 2026 and 2027, respectively, is expected.

AI Applications Scaling Up, Penetrating from Search to Enterprise

Goldman Sachs especially highlights that management has shown an extremely positive attitude towards the scaling of AI solutions among both consumers and enterprises. During the earnings call, management cited multiple large-scale cases across traditional search, AI Overviews, Gemini, and other AI formats, showing that AI is comprehensively reshaping Google's product experience.

Goldman Sachs believes that Google can successfully handle the evolution of search products in the coming years, with core advantages including its existing massive user base, accelerated product innovation speed, technical infrastructure scale, and cost advantages over competitors. The analysts pointed out that the market underestimates Google’s dual strengths—not only does it have the capability to widely distribute AI (applying to over a billion users), but also enjoys a computational scale advantage to drive investment and efficiency gains.

In the long run, Goldman Sachs continues to be optimistic about Google’s positioning in both the current computing environment (desktop and mobile computing at global scale) and the future one (AI/machine learning, personalization, lowering application usage thresholds). As AI monetization evolves from the "infrastructure" layer to the "platform" and "application" layers, the value of this full-stack capability will become even more prominent.

Sufficient Long-Term Growth Engines, Quantum Computing Offers Additional Options

Apart from the strong performance in core business and cloud computing, Goldman Sachs also highlighted the long-term growth potential within Alphabet’s structure, specifically mentioning the Waymo self-driving business and the quantum computing project. These long-term projects, although not significantly contributing to current financial performance, offer the company additional options for future growth.

Goldman Sachs raised its earnings forecast, lifting 2025 GAAP EPS from $9.86 to $10.49, 2026 from $10.51 to $10.71, and 2027 from $11.96 to $12.34.

Based on the updated outlook, Alphabet currently trades at about 26.5x and 23.0x the expected 2026 and 2027 GAAP EPS (excluding cash), with about $75 billion remaining in the current share repurchase authorization.

Goldman Sachs’s $330 price target is based on equal weighting of two valuation methods: applying a 22x EV/GAAP EBITDA multiple to the next 12 months plus 1-year EBITDA, and a 30x multiple to next 12 months plus 4 years’ free cash flow minus stock-based compensation (FCF-SBC), discounted over 3 years at a 12% rate. This price target represents about 20% upside from the current share price.

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