Alphabet has AI tech, scale to maintain, grow search base, says Morgan Stanley

Artificial intelligence, or AI, presentations over the past two days from Alphabet (GOOGL) and Microsoft (MSFT) speak to significant changes to come around the search user experience, its overall utility and higher incremental search compute costs, Morgan Stanley analyst Brian Nowak tells investors. While the analyst believes Alphabet has the AI tech and scale to maintain and grow its "leading user base," deeper than expected AI integration "speaks to higher incremental cost risk," said the firm, which sees every 10% of Google Search queries moving to language models adding about $1.2B of operating expenses. Morgan Stanley has an Overweight rating and $135 price target on Alphabet shares.