According to TheFly, Wells Fargo’s Ben Gawrelski hiked the price target for Alphabet to $438 from $416, Amazon to $322 from $312, and Meta to $835 from $767.
- Despite expecting AI infrastructure costs to rise, Wells Fargo does not see that as a headwind for the largest cloud providers.
- The firm expects hyperscalers to pass higher costs on to enterprise customers, allowing them to maintain attractive returns on their AI infrastructure investments.
- Wells Fargo estimates the AI infrastructure capex of the big four cloud service providers at $1.1 trillion in 2027, 23% higher than the consensus estimate.
Wells Fargo analyst Ken Gawrelski raised the firm’s price targets on Alphabet Inc. (GOOG, GOOGL), Amazon.com Inc. (AMZN) and Meta Platforms Inc. (META) on Tuesday, arguing that the cost of building AI infrastructure is climbing but is unlikely to derail the industry’s spending spree.
According to TheFly, Gawrelski hiked the price target for Alphabet to $438 from $416, Amazon to $322 from $312, and Meta to $835 from $767. The analyst has an ‘Overweight’ rating on all three stocks.
Alphabet’s Class A shares were up about 1% in Tuesday’s pre-market trade, while Amazon and Meta shares were up nearly 0.3%.
Why Wells Fargo Believes Higher AI Costs Aren’t A Red Flag
Despite expecting AI infrastructure costs to rise, Wells Fargo does not see that as a headwind for the largest cloud providers. The firm expects hyperscalers to pass higher costs on to enterprise customers, allowing them to maintain attractive returns on their AI infrastructure investments even as spending accelerates.
According to the note, inflation in memory and next-generation chips will push capital expenditures per gigawatt 22% above the firm’s prior estimates, but stronger pricing power should help offset those higher costs.
Wells Fargo estimates the AI infrastructure capex of the big four cloud service providers at $1.1 trillion in 2027, 23% higher than the consensus estimate.
The firm’s latest estimates come ahead of the latest quarterly earnings reports from Alphabet, Amazon, and Meta later this month.
TSMC Plans Chipmaking Price Hikes
Wells Fargo’s comments come amid a report that said that Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, could raise chipmaking prices by 10% next year.
TSMC has finalized discussions with customers on price increases ranging from 5% to 10% for both advanced and mature chip production. The chipmaker is reportedly considering price hikes to reflect rising costs of raw materials, chipmaking equipment, and the construction of new overseas fabrication plants.
The semiconductor foundry manufactures chips for many of the world’s biggest technology companies, including Nvidia Corp. (NVDA), Apple Inc. (AAPL), Advanced Micro Devices Inc. (AMD), Qualcomm Inc. (QCOM), Amazon, and Alphabet’s Google.
META’s AI Infrastructure Could Unlock New Growth, Says Raymond James
Raymond James also turned more bullish on Meta, raising its price target to $850 from $825 while reiterating a ‘Strong Buy’ rating. The firm said Meta’s potential expansion into AI cloud and API services could open a new avenue for growth by monetizing the company’s massive AI infrastructure investments.
The brokerage added that offering AI computing services could provide Meta with greater flexibility if its consumer AI initiatives fall short of expectations, while creating a high-return business built around the infrastructure it has already developed.
GOOGL stock is up 12% year-to-date, AMZN stock is up 8%, while META stock is down 2%.
The Invesco QQQ Trust (QQQ) is up 24% over the past 12 months, while the iShares U.S. Technology ETF (IYW) is up 34%.
Also See: Why Is TSM Stock Rising Today? Report Says TSMC Plans To Raise Chipmaking Prices In 2027
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