Alphabet Faces Shareholder Lawsuit and UBS Price Target Cut
Google's parent company is dealing with a class action lawsuit over AI delays and a reduced stock price target from UBS following quarterly results that missed expectations.
Alphabet Inc. is navigating a turbulent period marked by a newly reduced price target from financial firm UBS and an ongoing shareholder class action lawsuit. Following quarterly results that fell short of market expectations, Alphabet shares experienced a significant 13 percent drop on Thursday, prompting analysts to reassess the company's financial outlook and advertising growth trajectory.
The financial headwinds stem partly from softer-than-expected advertising revenue. In the third quarter, Search revenue reached $63.4 billion, which was below the $64.9 billion consensus, while YouTube generated $11.2 billion compared to expectations of $11.4 billion. UBS noted that management's measured approach to generating revenue from additional artificial intelligence queries pointed to a weaker advertising growth outlook than previously anticipated.
In response to these developments, UBS lowered its Alphabet price target from $380 to $332 while maintaining a neutral rating. The firm also adjusted its 2026 Search revenue forecast down to $257.1 billion from $260.8 billion, and lowered its YouTube advertising estimate to $44.4 billion from $45.4 billion. Furthermore, UBS revised its 2028 diluted earnings per share forecast down to $11.49 from $13.75, citing slower advertising growth and questions surrounding cloud profit margins.
The cloud segment presented a more complex picture for the tech giant. Although cloud revenue exceeded overall market expectations, it fell short of UBS estimates because certain capacity only became available at the very end of the quarter. Nevertheless, strong demand provided a positive counterweight, driving the cloud backlog up to $561 billion, surpassing the $538 billion forecast by UBS and rising from $510 billion in the previous quarter.
Concurrently, Alphabet is facing legal scrutiny from investors. The shareholder rights law firm Robbins LLP has reminded investors that a class action lawsuit was filed on behalf of individuals and entities who purchased Alphabet securities between May 19, 2026, and July 16, 2026. Investors who suffered significant losses during this designated class period have until November 30, 2026, to contact the firm regarding the lead plaintiff deadline.
According to the legal complaint, the class action focuses on events surrounding Alphabet's annual Google I/O developer conference held on May 19, 2026. During the event, Chief Executive Officer Sundar Pichai announced that the highly anticipated Gemini 3.5 Pro artificial intelligence model would launch in June 2026. The lawsuit alleges that defendants failed to disclose that the model was delivering disappointing training results, which would result in a significant delay.
The stock price impact materialized on July 16, 2026, when media reports surfaced indicating that Google was months behind schedule on delivering its flagship AI model due to ongoing coding and training challenges. Following the news, Alphabet's Class A common stock dropped 4.4 percent to close at $354.46 per share, and Class C common stock fell 4.4 percent to close at $353.58 per share on unusually heavy trading volume.
As Alphabet works to address capacity constraints and navigate its capital expenditure guidance—which remains between $195 billion and $205 billion—investors and analysts continue to monitor the company closely. The upcoming weeks will be critical for stakeholders evaluating both the long-term profitability of the cloud and AI infrastructure and the ongoing legal proceedings.