Hua Er Jie Jian Wen·2025-10-31 03:06Core Insights - Morgan Stanley's latest report indicates that Alphabet, Google's parent company, is expected to tactically outperform its competitor Meta due to strong earnings and upward revisions in profit forecasts [2] - The report highlights that Google's cloud business has shown significant growth, with a backlog increase of 46% quarter-over-quarter, reaching approximately $155 billion [4] - Meta faces challenges with rising operational and capital expenditures, leading to concerns about investment returns, which has resulted in downward revisions of its earnings forecasts [7] Group 1: Alphabet's Performance - Alphabet's earnings exceeded expectations across all major revenue lines, prompting Morgan Stanley to raise its target price from $270 to $330 [2] - Google's search business grew by 14.5% year-over-year, YouTube by 15%, and Google Cloud (GCP) by 34%, marking it as a standout performer [2] - The forecast for Alphabet's earnings per share (EPS) for fiscal years 2026 and 2027 has been increased by approximately 7% and 9%, respectively [2] Group 2: Google Cloud Highlights - Google Cloud's backlog surged by 46% quarter-over-quarter, adding about $49 billion, totaling $155 billion [4] - The number of contracts exceeding $1 billion signed by Google this year has surpassed the total from the past two years combined [4] - Anticipated revenue from a new contract with Anthropic is expected to contribute an additional $50 billion to $80 billion [4] Group 3: Meta's Challenges - Meta's operational and capital expenditures are rising due to investments in its "super intelligent team," leading to increased uncertainty regarding investment returns [7] - Despite strong core metrics on platforms like Facebook and Instagram, the high investment costs have raised concerns about Meta's return on invested capital (ROIC) [7] - Morgan Stanley has lowered its EPS forecasts for Meta for fiscal years 2026 and 2027 by 5% and 4%, respectively, and reduced its target price from $850 to $820 [2][7] Group 4: Future Competitive Landscape - The long-term competitive landscape between Google and Meta will depend on who can launch more groundbreaking next-generation AI models first [3][10] - Google's upcoming Gemini 3 model is seen as a critical catalyst for maintaining its leadership in generative AI [10] - Meta's success will hinge on its "super intelligent team" delivering a leading and unique model, Llama, by 2026 [10]