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Top Analyst Sees Strong AI Revenue for Alphabet (GOOGL) but Trims Price Target on Capex Concerns

Top Analyst Sees Strong AI Revenue for Alphabet (GOOGL) but Trims Price Target on Capex Concerns

  • 17.03.2025 11:29
  • markets.businessinsider.com
  • Keywords: High Capex, Market Growth

TD Cowen predicts Google Cloud will see significant AI-driven revenue growth, with GenAI contributing $38.6 billion by 2030, but raises concerns over rising capital expenditures. The analysis highlights Google's competitive edge in AI, particularly through Gemini, which offers a stronger revenue model compared to AWS and Azure.

Alphabet ServicesGOOGLsentiment_satisfiedAMZNsentiment_dissatisfiedMSFTsentiment_dissatisfied

Estimated market influence

Alphabet

Alphabet

Positivesentiment_satisfied
Analyst rating: Buy

Alphabet's Google Cloud is projected to see significant revenue growth from AI, with a CAGR of 48% between 2025 and 2030. Their capex is increasing, showing investment in AI capabilities.

Google Cloud

Positivesentiment_satisfied
Analyst rating: N/A

Expected to generate substantial revenue from AI, growing from $2.6B in 2024 to $38.6B by 2030. Capex is rising, indicating investment in AI infrastructure.

Amazon

Amazon

Negativesentiment_dissatisfied
Analyst rating: Strong buy

Alphabet's competitive edge with Gemini AI could negatively impact Amazon's AWS as they only get a share of revenue from Anthropic and OpenAI.

Microsoft

Microsoft

Negativesentiment_dissatisfied
Analyst rating: Strong buy

Similarly, Microsoft's Azure faces competition from Google Cloud's full API revenue from Gemini, which could affect their market position.

Anthropic

Neutralsentiment_neutral
Analyst rating: N/A

Mentioned as an AI partner of Amazon's AWS but no direct financial impact or role beyond this partnership is detailed.

OpenAI

Neutralsentiment_neutral
Analyst rating: N/A

Partnership with Microsoft's Azure, mentioned in the context of Alphabet's competitive advantage.

Context

Business Insights and Market Implications

Revenue Projections for Google Cloud

  • Generative AI (GenAI) revenue growth:
    • $2.6 billion in 2024, rising to $5.5 billion in 2025, and reaching $38.6 billion by 2030.
    • CAGR of 48% between 2025 and 2030.
  • Revenue contribution:
    • GenAI revenue expected to account for 26% of Google Cloud’s total revenue by 2030, up from 6% in 2024.

Capital Expenditure (Capex) Forecasts

  • Total capex projections:
    • $75 billion in 2025 (43% YoY increase).
    • $90 billion by 2030.
  • Google Cloud’s share of capex:
    • Projected at $36 billion in 2025, a 52% increase from the previous year.
    • Represents nearly half of Google’s total capex.

Competitive Dynamics and Strategic Considerations

  • Gemini AI vs AWS and Azure:
    • Gemini AI adoption is growing rapidly: 4.4 million developers using Gemini models (double in six months).
    • Competitive edge: Unlike AWS and Azure, Google Cloud captures 100% of Gemini API revenue, providing a potential market advantage.
  • Capex investment rationale:
    • Strengthening AI capabilities to compete with industry leaders AWS and Microsoft Azure.

Market Trends and Long-Term Effects

  • AI efficiency improvement:
    • Google Cloud expected to generate 3.7x additional revenue from GenAI between 2026 and 2030, up from 2.5x in 2019-2022.
  • Market positioning:
    • Increased capex highlights Google’s strategic focus on AI scalability and differentiation in the cloud market.

Regulatory Impacts

  • No specific regulatory impacts mentioned in the text.