Tech Titans: Microsoft and Alphabet in the AI Race
Microsoft's AI and Cloud Expansion
Microsoft is making significant strides in AI and cloud services, particularly in India. The tech giant is investing $17.5 billion to build more data centers and enhance its cloud capacity. This move is part of Microsoft's broader strategy to expand its AI infrastructure.
Azure's Remarkable Growth
Microsoft's cloud service, Azure, has seen impressive growth. In the first quarter of this year, Azure's revenue surged by 40%. Last year, Azure and other cloud services generated $75 billion, a 34% increase from the previous year. This underscores the critical role of AI in Microsoft's growth strategy.
Investor Concerns and Analyst Outlook
Despite strong demand, Microsoft's heavy investment in AI capacity is raising costs, which has some investors worried. However, analysts remain bullish.
- Barclays analyst Raimo Lenschow reiterated his Overweight rating on Microsoft stock.
- He highlighted Microsoft's plan to raise prices for Office and Microsoft 365 commercial plans, citing strong enterprise demand and the rising use of AI tools.
- Microsoft has added over 1,100 new features across its products in the past year, justifying higher prices.
- Wall Street consensus: Strong Buy with an average price target of $632.22, implying a 28% upside potential.
Alphabet's AI and Cloud Advancements
Alphabet has also seen a surge in investor interest, with its stock gaining 68% so far this year. This is partly due to the launch of its new AI model, Gemini 3, and Ironwood TPUs, positioning Google as a key supplier of AI infrastructure.
Google Cloud's Record Revenue
Alphabet's cloud business is benefiting from the broader AI shift. The company recently crossed $100 billion in quarterly revenue for the first time. Google Cloud ended the quarter with a $155 billion backlog, reflecting persistent demand for AI-focused services and enterprise tools.
Analyst Caution and Price Targets
Some analysts are cautious about Alphabet's valuation, noting that expectations have risen quickly. However, others remain optimistic.
- Truist analyst Youssef Squali raised his price target on Alphabet stock to $350 from $320.
- He cited improving trends in digital advertising and expects record levels of U.S. e-commerce and digital ad spending this holiday season.
- Squali also adjusted his outlook for Alphabet's Other Bets unit, pointing to Waymo's faster rollout across more U.S. cities.
- Wall Street consensus: Strong Buy with an average price target of $320.15, indicating a modest upside potential of around 1%.
