Google upgraded, 4 software names cut on AI risks

Investing.com — Here are the biggest analyst moves in the area of artificial intelligence (AI) for this week.

Wells Fargo upgraded Alphabet (NASDAQ:GOOGL) to Overweight on Monday, saying the company is well placed to lead the next wave of artificial intelligence due to its strengths in data, distribution and computing scale.

Analyst Ken Gawrelski said Google demonstrates “leadership in 3 key traits of AI winner: customer data, distribution and compute capacity.” He lifted its price target to $387 from $354.

The broker’s updated capacity work supports the more bullish stance. Wells Fargo said its Project Google model shows compute capacity “expands to 35GW by 2028 from 15GW at YE25,” adding the company is extending “its capacity lead relative to the hyperscaler peer group.”

As long as hyperscaler ambitions remain “bounded by compute capacity,” Google can build a durable advantage across cloud, search and emerging agentic AI offerings, Gawrelski said.

Wells Fargo also sharply increased its Google Cloud Platform (GCP) outlook. It now forecasts 2026 GCP revenue growth of 60% year over year, which is 11% above consensus, with 2027 and 2028 growth estimates running 16% and 12% above Street expectations.

The firm sees GCP compute capacity reaching 16.9GW in 2028, up from 7.6GW in 2025, and lifted cloud operating income forecasts for 2026 and 2027 to levels 10% to 15% above consensus.

Beyond infrastructure, Gawrelski pointed to subscription potential for Gemini, projecting it could reach “$12B ARR from $4B exiting 2025,” alongside possible upside tied to Apple’s Siri partnership.

While the shift toward AI search remains a risk, the analyst said Google has effectively “stalemated ChatGPT at ~13% share since July 2025,” with search activity now showing expansion.

Jefferies refreshed its U.S. applications software coverage, warning that AI disruption risks are increasing across the sector and prompting four downgrades to Hold, while identifying a smaller group of preferred names.

The broker noted that application software stocks have lagged the broader software benchmark, with many names down about 30% to 55% year to date versus a 24% decline for the IGV index. Against that backdrop, Jefferies reassessed the group using a new AI risk framework alongside company-specific fundamentals and catalysts.

Analyst Brent Thill downgraded Workday, DocuSign, Monday.com and Freshworks to Hold, pointing to persistent risks and softer sentiment. On Workday, he pointed to execution concerns tied to leadership changes, writing the “medium-term growth bar needs to be lowered…again.”

For DocuSign, Thill cautioned that a return to stronger growth will take time, noting “double-digit growth reaccel is a ways away” and that the Intelligent Agreement Management platform still needs to demonstrate traction.

He also flagged Monday.com’s “hazy outlook in both SMB and enterprise segments,” while warning Freshworks faces AI and competitive pressures in its core customer experience business.

On the more constructive side, the analyst highlighted Intuit, Procore, Atlassian and Salesforce as better positioned for the AI transition, citing more durable business models and internal AI adoption.

Intuit was named the firm’s top large-cap pick, supported by its data assets and broad AI deployment across its customer base. Thill also views Procore as an attractive mid-cap vertical software story with scope for revenue reacceleration as macro conditions improve.

Atlassian is seen as a structural beneficiary of AI-driven coding trends, while Salesforce is described as “best-positioned among apps vendors to deliver on AI agents,” with execution expected to support broader growth acceleration.

This week, Morgan Stanley upgraded Booking Holdings (NASDAQ:BKNG) to Overweight on Tuesday, while trimming its price target to $5,500 from $6,150, citing confidence in the company’s role in the evolving AI-driven travel ecosystem.

Analyst Brian Nowak said he expects Booking to remain “staying a key driver of travel even as agentic tools evolve,” pointing to its ability to “own the customer, capture robust traveler data and use those to drive high margin direct business.”

The analyst now expects online travel agencies (OTAs) such as Booking to remain core to the industry’s long-term structure despite the emergence of generative AI tools. Nowak noted that “agents also need BKNG’s leading inventory, giving BKNG leverage.”

“We think BKNG and the OTAs are set to be just as important in the agentic world as they have been the past two decades,” he wrote.

He added that early agentic travel offerings are “simply diverting traffic to the OTAs‘ apps/websites for purchase, rather than direct in-agent checkout,” while some channels “do not want to be the merchant of record.”

Nowak also argued that Booking remains well positioned if the sector evolves similarly to paid search, where OTAs “bid on advertising to win traffic and transactions… and subsequently work to convert this traffic to future direct customers.”

The analyst highlighted Booking’s “20+ year history of leading execution” and said he expects “more of the same going forward.”

Fresh volatility tied to AI spending and disruption fears is unlikely to fade soon, as investors grapple with an increasingly uneven landscape across technology stocks, according to Goldman Sachs.

The bank flagged a clear recent divergence in performance, with memory names rallying while software shares have sold off sharply. While near-term earnings remain broadly resilient, Goldman said investors are becoming more focused on longer-term disruption risks.

The Wall Street firm expects hyperscaler investment to stay strong, with consensus now pointing to $667 billion in capex for 2026, up 62% year over year. Still, analysts led by Ryan Hammond see the pace of growth peaking later this year and cautioned that parts of the AI infrastructure complex could face pressure if spending momentum cools.

“A deceleration in the quarterly growth rate is likely in late 2026,” the analysts wrote, warning that both revenue growth and valuations for some infrastructure stocks could prove vulnerable.

They also pointed to the widening gap between Nvidia’s share price and earnings as evidence of the market’s difficulty in sustaining strong returns amid concerns about “over-earning.”

Looking ahead, Goldman expects the shift from infrastructure toward applications to drive more differentiated outcomes across equities. As AI adoption broadens, investors will need deeper analysis of “competitive positioning, barriers to entry, and pricing power” to identify durable winners.

“The concerns about AI disruption will be difficult to disprove in the near-term,” the analysts said.

The team added that companies facing disruption fears will likely need multiple quarters demonstrating business resilience or materially lower valuations before investors return in size.

The recent software selloff, they said, reflects long-term uncertainty rather than any meaningful deterioration in near-term earnings, stressing it will be “difficult to disprove long-term disruption risk with near-term earnings resilience.”

In a Monday note to clients, Bank of America lowered its price target on Dell Technologies to $135 from $150, warning that rising memory costs are likely to pressure near-term profitability, while maintaining a Buy rating.

Analyst Wamsi Mohan said “impending memory headwinds will likely overshadow what should be a strong F4Q print,” noting memory costs are now up 140% year over year versus roughly 40% previously.

Based on updated modelling, BofA sees a potential 489-basis-point hit to gross margin, a 262-basis-point impact to operating margin and a $2.48 drag on fiscal 2027 earnings per share.

Mohan emphasized these represent downside cases, adding that “the true impact is less due to Dell driving further opex efficiencies, supply chain management, alternative component sourcing, and strategic pricing.”

BofA now forecasts fiscal 2027 EPS of $10.00, down from $10.86 previously.

The bank expects margin pressure across both the Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG), with modelling pointing to more than 300 basis points of deleverage in each segment.

ISG should be relatively more resilient given its portfolio is “more ‘mission critical’” and demand remains firm, resulting in a smaller expected year-over-year decline, the analysts said. In contrast, CSG margins could face greater near-term strain as Dell works through “pre-contracted pricing.”

Despite the cost headwinds, analysts said Dell’s longer-term earnings outlook remains supported by enterprise AI adoption, emerging AI PC tailwinds and increased attachment of the company’s storage intellectual property. Still, the spike in component costs adds uncertainty around fiscal 2027 guidance.

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