BofA Keeps Buy on Alphabet After I/O; Notes AI User Growth

Bank of America maintained a buy rating and a $430 price target on Alphabet in a research note published May 20 by analysts Justin Post and Nitin Bansal. Alphabet shares fell about 2% on the day of Google I/O. The $430 target implies roughly 10.9% upside from a $387.66 share price.

The note highlighted three user metrics disclosed at I/O: 2.5 billion users for AI Overviews, 1 billion users for AI Mode, and Gemini monthly active users rising from 400 million a year ago to 900 million today. The analysts added that AI Mode is doubling every quarter.

Post and Bansal wrote that Google is “no longer playing catch up, search & agentic announcements demonstrated a wave of leading product innovation,” while noting that whether monetization of AI queries can “materially exceed” traditional search remains an open question. The analysts said more complex queries could create additional ad surface, but current data does not confirm a durable revenue uplift.

The bank organized its I/O analysis across five product areas. On models the note highlighted Gemini Omni, which combines language, video and media generation to handle multimodal inputs, and Gemini 3.5 Flash, which the analysts said delivers faster inference and lower costs versus competing frontier models.

On Search, Gemini AI is integrated directly into Search and the company introduced persistent Search Agents that track topics such as finance, shopping, travel and sports. The note described Gemini Spark as a 24/7 cloud-based personal agent that can manage Gmail, Docs, Sheets, Calendar, Chrome and third-party services without user input, and said Google’s large user base gives it a deployment and ecosystem advantage for agentic workflows.

On commerce the analysts highlighted Universal Cart, which lets users save, track and buy across retailers including Target and Walmart; Amazon was not included and hotel booking functionality was described as likely several months away. On hardware the note outlined two lines of Gemini-powered glasses: audio-first models expected this fall and display-based versions previewed previously, and said camera specs and battery life were not disclosed.

The report projected a significant near-term financial impact from higher capital spending. Free cash flow is forecast to fall from $73.3 billion in 2025 to $44.1 billion in 2026 as capex rises from $91.4 billion to $186.6 billion. The analysts’ model shows earnings per share of $14.43 in 2026, $14.49 in 2027 and $17.62 in 2028.

On valuation, the note values Alphabet at about 28 times expected 2027 earnings plus cash on hand and set Q3 and Q4 results as early tests of whether growth in AI Mode users translates into revenue gains. The analysts listed four downside risks: search traffic shifting to AI competitors, delays integrating large language models into Search, regulatory pressure from the EU Digital Markets Act, and rising capex compressing free cash flow.

The analysts maintained the buy recommendation in the May 20 note and kept the $430 price target.