Morningstar has increased its fair value estimate for Google to $237 per share, up from $220 previously.

Morningstar analysts believe that Alphabet's fourth-quarter 2025 earnings were strong, and its stock is currently undervalued, with an opportunity to buy, given the expected growth of Google Cloud and the valuation upgrade. Fourth-quarter sales and operating margin grew 12% and 460 basis points year-on-year. Capital expenditure is expected to be US$75bn in 2025. The AI strategy is robust, and AI is effectively utilized in core advertising and Google Cloud. Ad sales grew 11% year-on-year, and the profitability of AI Overview is comparable to traditional search. Google Cloud revenue growth slowed to 30%, mainly due to capacity constraints, and is expected to rebound after new capacity comes online in 2025. Morningstar raised its fair value estimate for Google to US$237/share from US$220/share, based on the strong fourth-quarter performance and the re-acceleration of Google Cloud sales. The five-year revenue CAGR is expected to be 10%. In terms of segments, Google Search is expected to grow in the mid-to-high single digits in the next five years, YouTube in the low double digits, and Google Cloud's growth will accelerate after capacity is released. The operating margin is expected to remain around 32% in the next five years.