According to Morgan Stanley, considering Google's current stock price corresponds to a PE of about 18 times for 2026, the market has not yet fully granted Google Cloud the valuation premium it deserves. The collaboration with OpenAI could become a catalyst for accelerated growth of Google Cloud, releasing an important signal of Google's confidence in its long-term search position.
Wall Street News previously mentioned that there were media reports indicating OpenAI reached a cooperation agreement with Google last month, with Google Cloud providing computing power for OpenAI to train and run models. The cooperation was previously hindered due to OpenAI's locked agreement with Microsoft. Prior to January of this year, Microsoft was the exclusive cloud service provider for OpenAI.
According to the news from the Chase Trade Desk, Morgan Stanley Analyst Brian Nowak and his team have recently released a research report stating that the cooperation agreement between Google Cloud and OpenAI is significant for two main reasons: first, it is expected to accelerate the growth of Google Cloud Business, which is currently not fully valued at approximately 18 times the expected PE for 2026; second, it sends an important signal that Google is confident about its long-term search position.
The report speculates that although it has not yet been confirmed whether OpenAI will use TPU or GPU, it is more likely to rely on Google's GPU to meet computational capacity needs. This way, OpenAI can maintain consistency across its entire infrastructure, avoid vendor lock-in, and engineers do not need to familiarize themselves with new chip architectures.
Google Cloud may welcome new growth momentum.
The report points out that for Google, this cooperation could be an important turning point for Google Cloud's business.
Currently, Google Cloud's annualized revenue is approaching 50 billion USD, maintaining a growth rate of 20% to 30% over the past two years. However, compared to Amazon's AWS and Microsoft's Azure, its market share and growth rate have not shown a consistently overwhelming advantage - if OpenAI's involvement is substantial, it could become a catalyst for the accelerated growth of Google Cloud.
The report believes that based on Google’s current stock price corresponding to a PE of approximately 18 times for 2026, the market has not fully given Google Cloud the valuation premium it deserves.
The report further indicates that as Google's chip production capacity constraints ease in the second half of the year, this could become a driving force for faster and more sustainable growth for Google Cloud. For investors, this represents a potential bullish opportunity that has not been fully priced in.
Although the terms and scale of this potential collaboration have not yet been announced, Analysts expect that as the generative AI inference phase continues to develop, OpenAI will require increasing amounts of capacity. For reference, earlier this year, OpenAI signed an agreement with CoreWeave for $11.9 billion (including a $0.35 billion equity investment), and recently extended this agreement by an additional $4 billion.
Google is confident in its search position.
The deeper implication is that this collaboration may reflect Google's internal confidence in the long-term competitiveness of its core search business.
For a long time, investors have been concerned whether products like OpenAI's ChatGPT would disrupt Google's dominance in search.
The report sharply points out that if Google is truly worried about threats to its search business, would it be willing to provide crucial computing power to potential competitors? The answer seems to be no. This indicates that Google understands the health of its business better than anyone outside; it is fully confident in its user base, data assets, and pace of innovation.
The report further notes that compared to OpenAI, Meta's AI products may pose a greater structural threat to Google's search business, but Meta AI still needs to prove its commercialization capabilities.
Editor/Jeffy
