AI is pushing Google into a new cycle of exceeding expectations

Don't be scared by valuation anxiety—AI-driven surges in user activity are pushing Google toward a new cycle of exceeding expectations.Bank of America analyst Justin Post is very confident this time. Unlike the market's concerns over AI capital expenditures, Bank of America believes Google's search and cloud businesses are entering the "sweet spot" of AI monetization.1. High Probability of “Double Beat”: Q4 Revenue and EPS Will Surpass Expectations 🎯Bank of America forecasts Google’s Q4 revenue will reach $95.9 billion (Wall Street consensus is $95.2 billion), with earnings per share (EPS) at $2.65 (consensus is $2.64).Core Drivers: Referencing Meta’s strong results, the advertising market is very robust. More importantly, with the launch of Gemini 3.0, user activity has visibly accelerated.Key Data: Bank of America has raised its search business growth forecast to 15-16% (market consensus is only 13%), and YouTube’s growth forecast to 14-15% (market consensus is 13%). Both of these core engines are running faster than most expect.2. Capital Expenditure: Spending Will Intensify in 2026, and That Could Be a Good Thing 💸This is the biggest expectation gap in the report. Bank of America directly raised its 2026 Capex forecast by 14% to an astonishing $139-140 billion (well above Wall Street’s $119 billion estimate).If Meta dares to spend big, Google, as an AI-native giant, must not hold back. As long as Q1 guidance confirms that AI is aiding search monetization and driving user enthusiasm for new products (like Agentic AI), the market will, just as it did with Meta, view high investment as an early indicator of high growth.3. Cloud Business “Comeback”: Gemini 3.0 + TPU Are Taking Share from Azure ☁️The report specifically notes that Google Cloud’s competitiveness relative to Microsoft Azure is improving.Differentiation: Leveraging the cost-effectiveness of the Gemini 3.0 model and proprietary TPUs, Google is winning more mega-deals.Catalyst: AI-driven efficiency gains are materializing, and R&D leverage is beginning to show, which means there is still room for profit margin improvement (Q4 operating margin is expected to increase by 119 basis points year-over-year).4. Valuation and Risks: Not Cheap, But There's a Reason ⚖️Google’s current P/E ratio has already surpassed Microsoft’s, which is a potential psychological threshold.Long Thesis: Although the valuation is high, the monetization potential of the search business under the “AI-native format” in 2026 (with higher engagement and conversion rates) is underestimated.Risks: Besides OpenAI’s competition in advertising, the biggest risk is Q1 guidance. If management’s growth outlook isn’t compelling enough, or if costs soar without corresponding revenue surprises, the stock could come under short-term pressure. However, for now, Bank of America expects Q1 revenue guidance to be $90.1 billion, above the market’s $88.8 billion.Get ready for a “high investment, high growth” Google. As long as Q4 results prove that Search and YouTube are outpacing the market, a $140 billion capital expenditure isn’t a ticking time bomb—it’s fuel for the next bull run.For long-term capital, it’s still an excellent time to allocate to AI infrastructure and application ecosystem giants.