Goldman Sachs on Alphabet (GOOGL.US): Does It Merely Mark a Shift in Alphabet's AI Strategy?
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
Goldman Sachs analyst Eric Sheridan reiterates a Buy rating and a 12-month target of $435 on Alphabet (GOOGL.US), implying 22.8% upside from $354.30, after the July 22 results and the AI leadership reshuffle. Goldman argues the changes — Demis Hassabis becoming Chief Scientist focused on AGI and chairman of Google DeepMind, Koray Kavukcuoglu taking over Gemini product development and commercialization, and Jeff Dean leaving to start a new AI venture that Alphabet has backed — do not signal defeat in the AI race. Rather, Alphabet concedes the frontier model layer is no longer the best use of constrained compute and is pivoting to three durable advantages: distribution, diversified monetization, and scaled infrastructure. Goldman notes that excess returns in past computing cycles (desktop, cloud, mobile, AI) ultimately accrued to platform/infrastructure and application layers, not model layers. The 'Gemini Intelligence' rebrand and rival launches (Moonshot AI Kimi3, Meta Muse Spark, SpaceXAI Grok 4.5) reflect an industry shift toward price-performance and speed-to-market. Goldman expects Gemini 4 late this year or early next year, and Google Cloud to deliver near-triple-digit compound revenue growth with 30%+ GAAP EBIT margins over the next 4-6 quarters. The $435 target equally blends 26.0x EV/GAAP EBIT (NTM+1) and a modified DCF (50.0x EV/FCF-SBC on NTM+4 estimates, discounted three years). 2026E-2028E revenue: $432.96bn/$548.63bn/$673.45bn; EBIT: $173.77bn/$231.26bn/$289.94bn.