Wolfe Research sees stocks grinding higher on strong AI spending

Investing.com - Wolfe Research predicts stocks will continue to grind higher as long as artificial intelligence (AI) spending expectations remain intact, according to a new research note released Wednesday. This optimism is reflected in Alphabet’s (NASDAQ:GOOGL) strong performance, with the stock trading near its 52-week high of $214.65 and showing a remarkable 35% return over the past year. InvestingPro data reveals multiple positive indicators for the tech giant.

The firm points to two significant market rotations in 2025 so far, including a "violent" shift following tougher-than-expected tariff policies announced on Liberation Day and concerns about AI spending narratives after DeepSeek’s emergence in January.

Since April 9, when the Trump Administration revised its tariff policy, Wolfe Research believes AI spending has become the dominant theme driving market performance.

The research highlights a 33% increase in 2025 capital spending expectations since the beginning of the year among the "Mag 7" companies, particularly Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), and Alphabet (NASDAQ:GOOGL), which has propelled tech and AI-related stocks higher.

Wolfe Research expects the market to continue rising after the "seasonally weaker September period," while cautioning that these "lofty expectations can cut both ways," identifying AI spending expectations as a "key risk for 2026." With 30 analysts recently revising their earnings expectations upward for Alphabet, InvestingPro subscribers can access detailed insights about the company’s valuation and growth prospects through the exclusive Pro Research Report, available for over 1,400 top US stocks.

In other recent news, several investment firms have adjusted their price targets for Alphabet following developments in the company’s legal situation. Needham increased its price target to $260, maintaining a Buy rating, after Judge Mehta’s preliminary remedies in the Department of Justice case were released. Wedbush also raised its target to $245, citing reduced regulatory risks and arguing that Alphabet’s current valuation discount compared to peers is unwarranted. Goldman Sachs reiterated its Buy rating with a $234 price target, analyzing the potential impacts of the court’s remedies on Google and the broader search landscape. Barclays increased its price target to $250, maintaining an Overweight rating and noting the fading legal risks. KeyBanc raised its target to $265, describing the DOJ ruling as a positive development that could allow Alphabet shares to align with the S&P 500. These adjustments reflect a general consensus among analysts about the favorable impact of the recent legal outcomes on Alphabet.

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