Wells Fargo Trims Alphabet Estimates on AI Spending, Lifts Cloud Growth View

What Wells Fargo's note changed

Wells Fargo trimmed its profit estimates for Alphabet, Google's parent company, ahead of its second-quarter results. The analyst covering the stock cut 2027 and 2028 earnings-per-share estimates by about 4%, pointing to a mix of capital raises, updated assumptions about Google Cloud's contract backlog, and the effect of a new capacity agreement, the kind of deal Google signs to lock in computing power for its AI data centers.

At the same time, Wells Fargo kept its favorable rating on the stock and actually raised its forecast for Google Cloud's growth. It now expects second-quarter cloud revenue to grow 72% year over year, well above the roughly 65% that Wall Street analysts had penciled in on average, and it expects total Google revenue growth in the low 30% range with search revenue up around 17%.

Why it matters for cloud and AI-capex stocks

The note captures a tension playing out across the whole AI-infrastructure buildout. Companies like Alphabet are spending heavily on data centers, chips and cloud capacity to keep up with AI demand, and that spending weighs on near-term profit per share even when the underlying business is growing fast. The estimate cut reflects the cost side of that trade-off, while the raised cloud growth forecast reflects the revenue side, that Google Cloud's expansion is running ahead of what most analysts expected.

For a company whose valuation depends heavily on how the market weighs future cloud and AI earnings against today's spending, a report like this shows the market still sees the growth outweighing the near-term cost.

Which stocks, and why

The direct effect is on Alphabet. The estimate cut trims expected profit in 2027 and 2028, a modest negative on paper, but the more telling detail is the cloud growth forecast running well above consensus, since Google Cloud has become one of the clearest signs of whether Alphabet is capturing its share of enterprise AI spending. Keeping a bullish stance despite lower profit estimates suggests Wells Fargo sees the higher spending as an investment in growth rather than a warning sign.

No other listed company in this market is named in this note, so the direct read stays with Alphabet.

What to watch

Alphabet's upcoming second-quarter results will show whether Google Cloud growth actually lands near the elevated pace Wells Fargo is now forecasting, or closer to the more cautious Street consensus. Investors should also watch capital-spending guidance for the rest of 2026 and into 2027, since further increases would extend the same trade-off between heavier upfront costs and a bigger long-term cloud and AI business.