Rosenblatt initiates Buy on Alphabet, arguing AI search risks are largely priced in

Rosenblatt Securities has initiated coverage on Alphabet Inc. with a Buy rating, arguing that market concerns over AI chatbots disrupting Google’s traditional search dominance have largely played out. Analyst Scott Devitt, who issued the rating on 19 August 2026, maintains a price target of $410, viewing the company’s cloud infrastructure as the primary growth driver rather than a new threat to its core search business.

The thesis comes as Alphabet reported second-quarter results showing Google Search revenue grew 17 per cent year-over-year to $63.3 billion. While this figure was slightly behind Wall Street expectations of $63.4 billion, it marked a slowdown from the 19 per cent growth recorded in the previous quarter. The deceleration snapped a multi-quarter growth streak that had accelerated from 10 per cent in the first quarter of 2025 to 19 per cent in the first quarter of 2026.

Despite the search slowdown, Alphabet’s Cloud segment demonstrated significant momentum, with revenue surging 82 per cent year-over-year to $24.8 billion. Segment operating income more than tripled, rising from $2.8 billion to $8.8 billion. Rosenblatt identifies potential Cloud deceleration, rather than new Search risks, as the primary risk to the investment thesis, expecting capacity expansion and greater TPU monetisation beyond 2027 to scale operating profit.

The company’s AI ecosystem continues to expand, with its Gemini product surpassing one billion monthly active users by August 2026. To address the shift in user behaviour, Google has redesigned its search box for the first time in 25 years, incorporating an "AI Mode" button directly into the interface. This move aims to retain customers who might otherwise migrate to standalone chatbots, although Google still controls approximately 90 per cent of the search market.

Institutional interest in Alphabet remains robust, supported by significant holdings from major investors. Berkshire Hathaway holds approximately 78.8 million shares, valued at about $28.2 billion, while Fisher Asset Management and Arrowstreet Capital have reported multi-billion dollar positions. However, data from Insider Monkey indicates that the number of hedge fund holders in the stock declined to 265 at the end of the first quarter, down from 288 in the previous period.

Alphabet’s second-quarter report also highlighted a $99 billion paper gain on its equity stakes and an increase in capital spending plans. While Rosenblatt views Alphabet as a leading hyperscaler in the current AI cycle, the firm’s analysis suggests that the market has already factored in the most significant risks to its search monopoly.