Buy these stocks as plays on Google's big spending, analyst says

By Christine Ji

Google Cloud is growing fast, but several chip makers and networking providers could be better ways to capitalize on that trend, according to Melius Research

Melius Research projects Alphabet's infrastructure spending to jump 75% in 2027 as the company scales up its processing power for AI models.

Investors searching for artificial-intelligence opportunities should look beyond Alphabet this earnings season, according to one analyst.

Melius Research analyst Ben Reitzes said he expects Google's cloud business to post another strong quarter of growth at the end of October, but said that the real winners will be the semiconductor and networking suppliers building out Google's data-center infrastructure.

In a Monday note, Reitzes maintained a hold rating on Alphabet's stock (GOOGL) (GOOG), but issued significantly more bullish outlooks on chip makers Broadcom (AVGO) and Marvell Technology (MRVL), as well as on networking-equipment provider Arista Networks (ANET).

"Into year-end, the stock may go up a bit on brute force earnings upside, but the reason it isn't outperforming is that the long-term growth rate of search is still murky and Gemini 4 doesn't put a dent in Anthropic and OpenAI," Reitzes said of Alphabet.

But a strong performance from Google Cloud is likely to mean higher infrastructure-spending plans for Alphabet going forward, "since it will need to spend more on its models and grow its cloud capacity further in order to keep raising numbers," Reitzes added. Melius predicted that Google will spend $352 billion in 2027 on its AI-infrastructure plans, a 75% jump from estimated 2026 numbers.

That means Broadcom, which designs Google's custom tensor-processing-unit chips, could see a boost. Broadcom shares are down 27% from their highs earlier this year, as investors worry that Google is bringing in other suppliers for its TPUs. But Reitzes said the risk-reward balance is moving in its favor, as the stock already reflects this potential downside. He has a $610 price target on shares of Broadcom, implying over 70% upside from current levels.

The Melius team estimated that Broadcom's custom-chip revenue from Google will continue growing through 2031 despite these supplier shifts. Broadcom also has a major opportunity later this decade with customers like OpenAI and Anthropic. Anthropic is currently a major user of TPUs, but Reitzes said that the company may design its own custom chip with Broadcom to save on the markup Google charges.

"Any new chips with Anthropic could be more lucrative in terms of the sharing of profits," Reitzes said.

Marvell is also positioned to benefit from its deepening relationship with Google, according to Reitzes. In August, the two companies entered into a partnership, in which Marvell would co-design custom silicon products with Google. Marvell also issued Google a warrant that gives the company the option to buy up to $12.2 billion worth of Marvell shares. Reitzes has a $445 price target on Marvell shares.

JPMorgan's Harlan Sur wrote Monday that Marvell and Broadcom are his top picks in the semiconductor sector as he takes a more selective look at the broader chip sector, "favoring names where AI exposure, supply-constrained growth, pricing power and/or leverage to the broadening cyclical recovery should translate most directly into positive revisions," or higher financial estimates.

Beyond custom silicon, Melius's Reitzes pointed to major upside in the networking space. Arista, which supplies the high-speed networking switches and software that link chips together, has secured major customers in both Google and Anthropic. Reitzes has a $275 price target for Arista shares, noting that Arista could be the biggest beneficiary under his coverage if Google's spending numbers are higher than expected.

-Christine Ji

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10-12-26 1231ET