Alphabet: A Hold Your Nose Buy

Despite near-term deceleration in paid click growth, the analyst maintains a long position in GOOGL with a low 20s upside by year-end 2026, citing AI product leadership, network spin-out potential, and Waymo/GCP optionality as key drivers. Cost-cutting measures provide an EPS cushion if Search growth slows significantly, and the analyst anticipates paid click growth will bottom within six months, leading to favorable comparisons and positive revisions in 2026 as AI Mode replaces the current Search product.

Analysis

The analyst presents a long-term bullish case for Alphabet (GOOGL), projecting a low 20s percentage upside by year-end 2026, despite acknowledging near-term headwinds from decelerating paid click growth. Key drivers underpinning this outlook include Alphabet's anticipated leadership in AI product development, the potential for a network spin-out, and embedded call options related to its Waymo autonomous driving and Google Cloud Platform (GCP) ventures. The analysis highlights that recent reductions in force (RIFs) and broader cost-cutting initiatives, described as 'getting fit,' are expected to provide an earnings per share (EPS) cushion, should Search growth slow materially. This, coupled with an existing share buyback program, offers a management-supported backstop for the stock. Furthermore, the analyst forecasts that paid click growth will reach its nadir in approximately six months, which would then create favorable year-over-year comparisons and set the stage for a positive revisions cycle into 2026, particularly as an 'AI Mode' is expected to supersede the current Search product.

Key Decisions for Investors

• Investors might consider the current period of decelerating paid click growth as a potential entry point for a long-term holding, aligning with the analyst's 'hold your nose buy' perspective and YE'26 upside target.
• Monitor paid click growth metrics closely over the next six months for signs of bottoming, as this is a key catalyst for the anticipated positive revisions in 2026.
• Factor in the long-term optionality from AI advancements, Waymo, and GCP growth, alongside the downside mitigation provided by cost efficiencies and share buybacks, when assessing the risk/reward profile.
• Evaluate the company's progress in integrating AI into its core Search product, as this transition is presented as a significant driver for future growth and improved financial comparisons.