Wells Fargo Boosts Price Targets for Alphabet and Meta on AI Growth

Wells Fargo analyst Ken Gawrelski has raised his price targets for Alphabet (GOOGL) and Meta Platforms (META), reflecting growing optimism about their long-term prospects. For Alphabet, Gawrelski increased his target from $411 to $417, suggesting a 20.4% upside potential. He highlighted the company's specialized AI chips, known as TPUs, and the strong performance of Google Cloud as key drivers. Gawrelski projects 2027 revenue to be about 14% above current estimates, supported by robust Google Cloud growth and external TPU sales.

Gawrelski expects external TPU sales to reach $9.2 billion in Q3 and $11.5 billion in Q4. He also anticipates continued growth in Google Cloud's core business, excluding TPU sales. While noting that AI agents could eventually compete with Google Search, he emphasizes that strong Search activity remains a positive. Additionally, he foresees high capital spending, with 2027 CapEx potentially reaching $350 billion, above the Street's $305 billion estimate.

For Meta, Gawrelski raised his price target to $1,000 from $796, implying a 34.8% upside. He believes Muse AI could drive long-term growth, though higher operating costs and AI spending may pressure earnings in the near term. Gawrelski expects Q3 advertising revenue of about $64 billion, up 25% year-over-year, and Q4 revenue reaching $75.3 billion. He views 2027 as a potential low point for earnings due to heavy AI investments, with earnings expected to improve beyond that period.

Despite the challenges, Gawrelski maintains Buy ratings on both stocks. Both Alphabet and Meta carry a Strong Buy consensus rating on TipRanks, with Alphabet currently implying higher upside potential of 23.5%.