• Wells Fargo (WFC) upgraded Alphabet (GOOGL) (GOOGL) to Overweight from Equal Weight, raising its price target to $387 from $354, driven by Google's planned compute capacity expansion to 35GW by 2028 from 15GW.
  • The firm expects this capacity surge to fuel faster growth in Google Cloud, with revenue forecasts lifted above consensus, and sees new upside from AI products like Gemini subscriptions and potential partnerships.
  • Analyst Ken Gawrelski highlights Google's expanding compute capacity as a competitive edge that positions it to dominate cloud and AI-driven businesses, outpacing rivals in infrastructure investments amid surging AI demand.

A Strategic Upgrade Fueled by Infrastructure Ambitions

Wells Fargo has shifted its stance on Alphabet, upgrading the tech giant to Overweight and boosting its price target to $387, up from $354. The move, according to analyst Ken Gawrelski, hinges on Google's aggressive plans to ramp up compute capacity, targeting 35 gigawatts by 2028 from a current 15GW. This expansion, Gawrelski noted in a recent report, is set to outpace competitors and solidify Google's position in the cloud and AI arenas, where infrastructure scale is increasingly a differentiator.

Google Cloud, which reported revenue of $15.16 billion in Q3 2025—a 33.5% year-over-year jump—is poised to benefit directly. The capacity build-out is expected to accelerate growth, with Wells Fargo lifting its revenue forecasts well above consensus. "Stronger capacity is key to fueling faster growth in Google Cloud," Gawrelski said, pointing to generative AI customers like Anthropic and OpenAI as drivers. Google's capital expenditure plans underscore this push: $92 billion at the midpoint for 2025, with projections exceeding $130 billion in 2026, largely earmarked for servers and TPUs.

Navigating a Tight Supply Landscape

In a market where compute supply remains constrained into 2026, Google's capacity ambitions could give it a leg up. Global cloud infrastructure spending hit $107 billion in Q3 2025, up $23 billion year-over-year, with hyperscalers like AWS, Azure, and Google Cloud controlling 65% of the market. Google's share sits around 10%, but its expansion plans aim to close the gap. The firm's server spending, projected at $55.2 billion for 2025 and potentially over $80 billion in 2026, rivals historical peaks from the Dot-Com era, adjusted for inflation.

Partnerships are amplifying this effort. Anthropic, for instance, is expanding its use of Google Cloud TPUs to 1 million units, worth tens of billions and exceeding 1GW in capacity by 2026. "This isn't just about hardware; it's about enabling frontier AI for businesses of all sizes," a source familiar with the matter said, noting that the deal supports over 300,000 customers from Fortune 500 firms to startups. Google's rental of Blackwell GPU capacity further signals robust demand from partners, though the company declined to comment on specific figures when reached.

Implications for Investors and the Cloud Race

The upgrade reflects a broader trend: hyperscalers are betting big on AI, with capex surges post-2023 driving a 24% growth rate in the sector. For Alphabet, the focus on compute capacity could translate into sustained revenue streams from cloud services and AI products like Gemini subscriptions, which Gawrelski flagged as a new upside. "Without this scale, maintaining competitiveness in AI would be challenging," he added, suggesting that rivals might face capacity gaps.

Looking ahead, experts forecast that Google's capex could peak in 2026 before generative AI revenue matures, positioning the company for long-term dominance by 2028. The market reaction has been muted in early trading, but analysts are watching for signs of execution on these ambitious plans. As one industry observer put it, "It's a high-stakes game, but Google's infrastructure push could pay off handsomely if demand holds."

Correction: An earlier version misstated the year for Q3 revenue; it has been updated to 2025.