Alphabet's stock slump is a 'tactical buying opportunity,' according to one analyst

By Christine Ji

Investors are overlooking the potential of Alphabet's custom-chip business as the company plans to expand its data-center capacity going into 2028, according to Morgan Stanley

Morgan Stanley's Brian Nowak believes Alphabet could generate an additional $80 billion in custom-chip sales in 2028.

Alphabet and other "Magnificent Seven" names have fallen out of favor in recent weeks as investors pivot toward memory companies on the receiving end of the hyperscalers' heavy artificial-intelligence spending.

That creates an opportunity for investors to take advantage of recent weakness in shares of Alphabet (GOOGL) (GOOG) as the company ramps up its custom-chip business, according to Morgan Stanley analyst Brian Nowak.

In a Monday note, Nowak raised his price target on the stock to $415 from $375. Nowak believes Alphabet will add 9 gigawatts of compute capacity in 2028 and sell 4 gigawatts of its proprietary tensor processing units to customers - with the latter generating up to $80 billion in incremental revenue.

Google's growing TPU business isn't priced into the stock now, Nowak said. The company's "fundamentals and visibility into '27 and '28 are improving...creating a tactical buying opportunity for one of the best positioned AI companies around," Nowak wrote.

Shares of Alphabet have fallen 9% in the past month.

The AI build-out is constrained by access to compute and will likely remain bottlenecked, putting Google Cloud in a favorable position. After years of internal TPU usage and renting it via the cloud, Google began to sell TPUs directly to third parties in 2026.

In 2028, Alphabet is expected to bring 2 gigawatts of Nvidia (NVDA) graphics processing units and 7 gigawatts of TPUs online. Nowak anticipates that Alphabet will reserve 5 gigawatts of compute for internal use while selling the remaining 4 gigawatts of TPUs.

A more bullish outlook on Google Cloud and TPUs led Nowak to raise companywide revenue projections and earnings-per-share estimates by 4% for 2027 and 1% for 2028. Morgan Stanley anticipates Google Cloud to grow 106%, reaching $214 billion in 2027, followed by 44% growth in 2028 to reach $308 billion.

Alongside this revenue growth, Google Cloud is also set to become more profitable as TPUs lower the cost of building data centers. While Alphabet plans to put up to $190 billion toward capital expenditures this year, the company could increasingly rely on financial partners or leased data-center space to lower its upfront infrastructure costs, Nowak said. The company recently announced a joint venture with Blackstone (BX) to scale its TPU development.

Nowak said that Google Cloud's earnings before interest and taxes, or operating profit, will reach $132 billion in 2028, comprising 46% of companywide operating profit.

Alphabet's stock currently trades at 18x Morgan Stanley's 2028 EPS estimate.

"We argue [Alphabet's] material multi-pronged leading AI EBIT engine should warrant a higher multiple over time," Nowak wrote.

-Christine Ji

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06-30-26 1128ET