BMO Capital raises Alphabet stock price target to $225 on AI momentum

BMO Capital raised Alphabet's price target to $225 from $208, maintaining an Outperform rating, citing strong projected 2Q25 performance driven by accelerating AI adoption in Search and better-than-expected Google Cloud momentum. This positive outlook, echoed by other firms increasing their targets, prompted Alphabet to raise its 2025 capital expenditure guidance to $85 billion, with BMO projecting $96 billion for 2026, signaling significant investment in these core growth areas.

Analysis

A strong consensus is forming among sell-side analysts regarding Alphabet's positive growth trajectory, driven by advancements in AI and Cloud computing. BMO Capital has raised its price target to $225, citing expectations for a strong 2Q25 and accelerating revenue growth in the second half of 2025 due to AI integration in Search. This sentiment is echoed by Evercore ISI, RBC Capital, and Jefferies, who have also increased their targets following a second-quarter report that surpassed revenue and earnings expectations. A key indicator of management's confidence is the upward revision of 2025 capital expenditure guidance from $75 billion to approximately $85 billion, with BMO forecasting a further increase to $96 billion in 2026. This aggressive spending underscores a strategic commitment to building out the infrastructure needed to support Google Cloud momentum—which was noted as being better than expected—and the performance enhancements from its Vertex AI and TPU/GPU offerings. Despite the competitive pressure for talent, evidenced by Meta hiring three AI researchers from Google, Alphabet continues to innovate, as shown by the development of its Aeneas AI model. At a market capitalization of $2.32 trillion and a P/E ratio of 21.15, the market is pricing in significant future growth, which appears justified by the broad-based operational momentum.

Key Decisions for Investors

• Given the unanimous price target increases from multiple firms and strong upward revisions to earnings estimates, investors should consider the bullish consensus as a strong validation of Alphabet's AI and Cloud strategy.
• The substantial increase in planned capital expenditure to $85 billion for 2025 is a critical data point; monitor the company's ability to translate this investment into sustained revenue growth and improved market share in Cloud.
• While the operational outlook is strong, the departure of AI researchers to a key competitor like Meta serves as a reminder to monitor talent retention and the competitive landscape as a potential risk factor.
• Considering the P/E ratio of 21.15 against the backdrop of accelerating growth forecasts, the valuation appears constructive, however investors should weigh the significant capital outlays required to achieve this growth.