Search hegemony shakes, antitrust storm intensifies: Why are Citi and Damo still bullish on Google (GOOGL.US)?

The Zhitong Finance App learned that recently, Citi and Daimo separately published research reports on Google (GOOGL.US). Among them, Citi maintained a “buy” rating for Google (GOOGL.US), and the target price was set at $200. The agency believes that the ecological advantages of Google products and AI technology innovation will drive the continuous growth of the search business. Furthermore, Damo also gave Google an “increase” rating, with a target price of 185 US dollars. It believes that the current valuation already reflects the market's concerns about its business, and there is an opportunity for an upward revaluation.

Morgan Stanley believes that as of May 7, 2025, Google's stock price was $151.38, and the price-earnings ratio (PE) corresponding to the 2026 expected earnings per share (EPS) of 10 is only 15 times, and this valuation is close to the bottom level of 2022. Based on this, Morgan Stanley set a target price of $185 for Google, which has 22% upside compared to the current stock price.

Citi, on the other hand, based on Google's 2026 GAAP EPS of $10.11 and gave it a price-earnings ratio (PE) of 20 times, thus deriving a target price of $200, which has 32% upside compared to the current stock price. At the same time, Citi emphasized the strong ecological barriers built by Google with 15 products with over 500 million monthly active users, which further strengthened its confidence in Google's future performance.

In terms of financial conditions, Citi expects Google's revenue and earnings per share (EPS) to maintain steady growth in 2024-2027. Revenue forecasts for each quarter of 2025 are $33.088 billion, $10.347 billion, $11.353 billion, and $11.988 billion, respectively, while EPS is expected to be $2.81, 2.14, 2.21, and $2.43, respectively. The revenue growth rate for the full year of 2026 is expected to be about 9%, and GAAP EPS operating margin is expected to be about 30%, giving a 20-fold P/E valuation, corresponding to a target price of $200.

In contrast, Damo expects Google's operating profit for 2025-2027 to be 127.605 billion, 141.25 billion, and 157.231 billion US dollars, respectively, net profit of 132.406 billion, 145.725 billion US dollars, 161.31 billion US dollars, and EPS of 10.79, 10.34, and 10.94 US dollars, respectively. Based on the 10.9x EV/NTM EBITDA estimate, a target price of $185 was given.

In terms of competitive advantage, Damo pointed out that despite competition and macroeconomic pressure, Google is expected to maintain growth in search advertising revenue due to its scale and advantages. Its advertising project, AdWords, generates major revenue for the company through an auction model. Citi, on the other hand, emphasized that Google has 15 products with monthly activity exceeding 500 million and 7 products with monthly activity exceeding 2 billion, which can continue to attract users to use search services. At the same time, Google's investment and innovation in AI, such as Gemini 2.5 and Al Mode extensions, have improved user experience and ad relevance.

However, Google still faces many risks and challenges. For example, the actions of competitors such as Apple in the search field, and the emergence of emerging AI products such as ChatGPT, pose a potential threat to Google's search business. According to Citi data, Google's search share in Safari declined in April 2025, and the global search market share fell 120 basis points year over year.

Apple executive Eddie Kui said that due to the increase in the use of AI products such as ChatGPT (with 500 million + WAUs and 20M payment subscribers), Google search traffic on the Safari browser declined for the first time in more than 20 years, and Apple may also include other AI providers in Safari's AI search results options (although they may not be the default option), which also had an impact on Google's search business. In addition, emerging AI search results services such as OpenAI and Perplexity are rapidly rising, seizing Google's market share and posing unprecedented challenges to Google.

It is worth mentioning that Google faces multiple antitrust investigations and regulatory pressures, which may adversely affect its business and financial performance. In the US, the court ruled that Google had an illegal monopoly in the search market and that its commercial practices needed to be adjusted. Additionally, Google is increasingly being scrutinized for issues such as the monopoly power of advertising, the handling of user privacy, and prejudice against AI products. In Europe, governments are also stepping up scrutiny of technology companies, and the regulatory environment has become more complicated.

Finally, the uncertainty of the current economic situation may have an impact on advertising market demand, which in turn affects Google's advertising revenue. The advertising business is one of Google's main sources of revenue. Fluctuations in the macroeconomic environment may cause companies to cut their advertising budgets, thereby affecting the growth of Google's advertising revenue.

Looking forward to the future, both of these investment banks are optimistic about Google's layout and long-term development potential in the AI field. Google's investment in AI technology will drive product and service innovation, and is expected to achieve breakthroughs in various fields such as search, advertising, and cloud services, and further strengthen its market position. But at the same time, Google also needs to deal with challenges from various aspects such as competition, regulation, and macroeconomics in order to achieve sustainable and stable development.