Overview
Mizuho reiterated an Outperform rating on Alphabet and kept a $460 price target after the company reported a mixed third-quarter performance. The firm advised buying the after-hours pullback in GOOGL shares, even as the stock traded down about 11% premarket.
Analyst view on the pullback
Analyst Lloyd Walmsley wrote, "We are buyers on the after-hours pullback in GOOGL shares, as we continue to see more aggregate EPS impact from upside to Cloud segment from TPUs than downside from lower search revenue." He frames the pullback as an opportunity based on Mizuho's evaluation of Cloud trends and TPU economics.
Cloud and TPU performance
Mizuho's note highlights Cloud revenue growth of 103%, driven by core demand and the scaling of TPU revenue. Cloud margins improved to 36.2% in the quarter, up from 35.6% in the prior quarter, even as TPU revenue meaningfully increased. Walmsley interprets the margin movement as evidence that TPU margins are closing in on core Cloud margins, contradicting Mizuho's earlier estimate that TPU margins would be closer to 14%.
Under Mizuho's fiscal 2028 estimates, the analyst said this evolution in TPU revenue and margins would translate into about 13% upside to consolidated operating income and roughly 12% upside to GAAP EPS.
"We do not believe significant TPU revenue or margin is in consensus or the stock," Walmsley added, underscoring his view that the market has not fully priced in these Cloud-related gains.
Search results and monetization dynamics
Search revenue grew 12% excluding currency impacts, missing Mizuho's 13% estimate and falling short of the 15% consensus. Walmsley noted that monetization of AI Mode currently lags traditional Search, which creates a near-term headwind as AI Mode scales. At the same time, query growth was the strongest in five years and AI Mode usage appears largely incremental.
Walmsley said, "We suspect this will be the last cut in search estimates and see significant upside to Street Cloud segment EBIT," indicating he expects limited further downward revisions to Search forecasts and material upside in Cloud earnings relative to Street expectations.
Margin and cost considerations
Mizuho also flagged a challenging margin outlook heading into 2027, noting Cloud faces higher depreciation and capacity costs. On Alphabet's call, the company confirmed that its TPU racks are sold to Broadcom, which then sells them to customers. These cost and capacity dynamics are part of the broader margin picture Mizuho is monitoring.
Implications
Taken together, Mizuho's stance is that the Cloud segment's rapid revenue growth and improving TPU margins provide a material offset to near-term softness in Search, supporting a buy-on-pullback recommendation for GOOGL shares under the firm's scenario-based fiscal 2028 projections.