Wells Fargo analyst Ken Gawrelski raised price targets for Alphabet Inc. (GOOG, GOOGL), Amazon.com Inc. (AMZN), and Meta Platforms Inc. (META) stocks on Tuesday, citing rising AI infrastructure costs that the firm expects major cloud providers to offset through customer pricing. According to TheFly, Gawrelski increased Alphabet's target to $438 from $416, Amazon's to $322 from $312, and Meta's to $835 from $767, maintaining 'Overweight' ratings on all three stocks. Wells Fargo estimates AI infrastructure capital expenditures for the four largest cloud service providers will reach $1.1 trillion in 2027, 23% above consensus estimates, as the firm projects costs per gigawatt to rise 22% due to memory and chip inflation.
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%.
Wells Fargo Projects Cost Pass-Through to Enterprise Customers
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. 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
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.
Raymond James Raises Meta Price Target on AI Infrastructure Monetization
Raymond James raised its price target for Meta 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.
Stock Performance Data
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%.
FAQ
What price targets did Wells Fargo set for Alphabet, Amazon, and Meta stocks?
Wells Fargo analyst Ken Gawrelski set price targets of $438 for Alphabet (from $416), $322 for Amazon (from $312), and $835 for Meta (from $767), with 'Overweight' ratings on all three stocks.
Why does Wells Fargo expect higher AI infrastructure costs won't hurt major cloud providers?
Wells Fargo expects hyperscalers to pass higher costs on to enterprise customers, allowing them to maintain attractive returns on their AI infrastructure investments despite capital expenditures per gigawatt rising 22% due to memory and chip inflation.
What is Wells Fargo's estimate for AI infrastructure spending in 2027?
Wells Fargo estimates the AI infrastructure capital expenditures of the four largest cloud service providers at $1.1 trillion in 2027, which is 23% higher than the consensus estimate.
