Google’s Stock Fell on Its Best I/O in Years. Here’s Why BofA Is Still Buying

Google had a great I/O. Then its stock fell 2%. Bank of America still says buy.

BofA analysts Justin Post and Nitin Bansal published their note on May 20 with a maintained “buy” rating and a $430 price objective on Alphabet—10.9% upside from its current price of $387.66. Their verdict: “Google no longer playing catch up, search & agentic announcements demonstrated a wave of leading product innovation.”

The bull case runs on three user metrics from Google’s own I/O disclosures. AI Overviews—the AI summaries at the top of Search results—now has 2.5 billion users. AI Mode, the conversational layer of Search, has 1 billion and is doubling every quarter. Gemini’s monthly active users grew from 400 million a year ago to 900 million today.

BofA’s read is that ramp “suggests Google is successfully transitioning Search users toward AI-native experiences, reducing the risk of competitive disruption.”

The bank is honest about what’s still unresolved, though: whether monetization of AI queries can “materially exceed search” is an open question. More complex queries mean more ad surface area in theory. The data hasn’t confirmed it yet.

Five bets on the table

BofA structured its I/O analysis around five product tracks.

On models: Gemini Omni merges Gemini with video and media generation tools—what the bank calls the company’s “push toward world-model AI systems capable of understanding and interacting across multimodal environments.” Gemini 3.5 Flash brings “materially faster inference speeds and lower costs relative to competing frontier models,” a price-performance edge that matters for Cloud wins as much as consumer apps.

On Search: Gemini AI is now integrated directly into Search alongside new “Search Agents”—persistent background agents that continuously monitor finance, shopping, travel, and sports on behalf of users. The redesigned Gemini app adds dynamic layouts, fluid animations, and AI-generated visuals.

On agents: Gemini Spark is a 24/7 cloud-based personal agent handling Gmail, Docs, Sheets, Calendar, Chrome, and third-party services without any user input required. It’s Google’s response to the boom of agentic tools like Hermes and OpenClaw.

BofA argues Google’s “captive audience and speed of deployment” gives it a head start on “ecosystem lock-in and behavioral defaults around agentic workflows.”

On commerce: Universal Cart lets users save, track, and buy across retailers including Target and Walmart. Amazon is not in the cart. Hotel booking is “probably several months away,” per BofA, with some negotiations still ongoing.

On hardware: two categories of Gemini-powered glasses—audio-first models expected this fall, and display-based glasses previewed last year. The audio-first line “will likely be in direct competition with Meta’s Ray-Ban.” Camera specs and battery life weren’t announced, which BofA reads as Google still having “work to do before release.”

Yeah, but…

Not everything is roses for Google, though. Free cash flow is projected to drop from $73.3 billion in 2025 to $44.1 billion in 2026 as capital expenditure surges from $91.4 billion to $186.6 billion.

The Earnings per Share stat tells a similar story: BofA models $14.43 per share in 2026, barely moving to $14.49 in 2027 before recovering to $17.62 in 2028. The spending is happening now. The returns are a 2028 story.

On valuation, Alphabet is still heavily overpriced. BofA says the premium is “justified and could persist given improving confidence in Alphabet’s AI positioning.”

The report also mentions four explicit downside risks: search traffic migrating to AI competitors, LLM integration in Search taking longer than expected, EU Digital Markets Act compliance pressure, and rising capex compressing free cash flow.

BofA says Google stock could reach $430 because it values the company at 28 times its expected 2027 earnings, plus the cash Google has on hand. Alphabet’s Q3 and Q4 earnings will be the first real test of whether 1 billion AI Mode users are translating into the revenue growth that makes that multiple stick.