Bank of America reaffirms buy on Alphabet ahead of Google I/O
Alphabet shares have surged 25.34 per cent year-to-date, significantly outperforming the S&P 500, but Bank of America warns that high expectations for the upcoming developer conference pose a risk if major announcements fall short.
Bank of America analyst Justin Post has reiterated a buy rating for Alphabet (GOOGL), maintaining a price target of $430 ahead of the company’s Google I/O developer conference scheduled for May 19-20, 2026. The forecast comes as Alphabet shares have climbed approximately 25.34 per cent year-to-date as of May 16, substantially outpacing the SPDR S&P 500 index (SPY), which has risen 8.4 per cent over the same period.
Post’s analysis highlights that while the tech giant has outperformed other members of the Magnificent Seven, the market’s elevated expectations for the upcoming event create a near-term risk. The bank notes that a lack of a significant "wow" announcement could pressure the stock, particularly given the intense scrutiny on artificial intelligence capabilities. The analyst expects updates on AI subscription tiers, including potential enhancements to Pro and Ultra plans, alongside previews of new hardware such as the "Googlebook" laptop category and Project Aura smart glasses.
The bullish case is underpinned by several recent developments, including a reported agreement for Google to provide AI models to the Pentagon for classified work. Additionally, the company unveiled its eighth-generation custom Tensor Processing Units (TPUs) at Google Cloud Next on April 22. These new chips, featuring architectures for both training (TPU 8t) and inference (TPU 8i), underscore Alphabet’s position as the only major tech firm with custom silicon capable of both running and training frontier AI models.
Financial commitments to the AI sector have also intensified, with Alphabet agreeing to invest up to $40 billion in Anthropic. This includes a $10 billion cash injection at a $350 billion valuation, with an additional $30 billion contingent on performance targets. This investment aligns with broader industry movements, as reports indicate Anthropic is in talks to raise further capital in a round that could value the company at up to $950 billion.
Post values the stock based on a 28 multiple of his estimate for core Google GAAP EPS for 2027, plus cash per share. This represents a premium to the company’s ten-year average price-to-earnings ratio of 22x, a valuation the bank deems reasonable given expectations for double-digit revenue growth and cloud margin expansion. However, risks remain, including potential revenue pressure from EU Digital Markets Act compliance and the possibility of increased capital expenditure impacting free cash flow.
