Morgan Stanley gives Google stock investors reason to rethink AI spending

Google banal investors were, for the astir part, bracing for different AI spending headache.

For immoderate context, the tech elephantine had already bumped its full-year 2026 capex guidance to $180 cardinal to $190 billion, saying request for AI compute is "unprecedented."

At the aforesaid time, 2027 capex is expected to emergence importantly from 2026, according to its Q1 net filing.

So Wall Street felt that Google's parent, Alphabet (GOOGL), would conscionable proceed shelling retired wealth connected chips, information centers, and unreality capableness portion investors waited for impervious that the spending could construe into durable sales.

Morgan Stanley's latest enactment changes the frame.

In a enactment shared with me, the slope points to Google's estimated high-priced compute-rental woody with SpaceX arsenic a large awesome that Alphabet mightiness not simply beryllium chasing capacity.

It whitethorn beryllium positioning AI products to monetize that capableness much rapidly than Wall Street initially modeled.

Investors proceed worrying astir Google's increasing AI bill, but Morgan Stanley feels that measure mightiness besides underscore a bigger gross opportunity.

So it leaves the question: Is AI spending inactive a borderline risk, oregon the clearest motion that Alphabet's adjacent maturation motor is already forming?

Morgan Stanley's optimistic instrumentality connected Google AI spending 

Morgan Stanley says Alphabet's AI spending should not beryllium taken purely arsenic a outgo problem.

The slope argues Google's estimated $50/watt compute rental woody signals some urgency astir AI capableness and assurance that higher-value products whitethorn beryllium coming. 

It estimates that Google is renting astir 110,000 Nvidia GB300 GPUs from SpaceX, representing astir 220 MW of compute and astir $11.04 billion successful annualized expense.

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However, the large displacement is monetization.

Morgan Stanley says its existent Google Cloud estimates connote lone astir $14 cardinal of incremental gross per incremental rack GW successful 2027. 

That looks blimpish if caller AI tools tied to Gemini Enterprise, Vertex AI, Workspace, Wiz, and different unreality products thrust healthier demand.

The slope says Google Cloud's quality to monetize incremental capableness astatine $25/watt successful 2027 implies 27% upside to its existent maturation estimate.

Morgan Stanley rates Alphabet overweight with a $375 terms target. 

That people is based connected a discounted currency travel and semipermanent EBITDA aggregate model and implies about 24 times 2027 earnings.