As Meta Platforms and Alphabet-owned Google head into a closely watched earnings season after a major legal setback, analysts say the results could serve as the next catalyst for the stocks.

Analysts at Wells Fargo have reiterated an overweight rating on both companies, signalling continued confidence in their long-term outlook, even though they have trimmed the price targets.

Shares of Meta and Alphabet have come under modest pressure following the verdict, which found both companies liable for contributing to harm caused by their platforms.

A Los Angeles jury awarded $6 million in damages, with Meta bearing 70% of the liability and Alphabet’s YouTube responsible for the remainder.

Both companies have said they will appeal the ruling.

“Teen mental health is profoundly complex and cannot be linked to a single app,” a Meta spokesperson said, while Google argued the case “misunderstands YouTube, which is a responsibly built streaming platform, not a social media site.”

Meta is down about 13% in the last one month, while Alphabet is down 4%.

Analysts, however, appear to be focusing more on fundamentals than on legal risks, particularly with earnings due later this month.

Meta outlook supported by strong revenue growth

Wells Fargo expects Meta to deliver first-quarter revenue of $55.9 billion, representing a 32% increase from a year earlier and slightly above consensus estimates of $55.4 billion.

The brokerage also anticipates second-quarter revenue guidance in the range of $58 billion to $61 billion, broadly in line with market expectations.

Analyst Ken Gawrelski noted that expectations around Meta’s artificial intelligence roadmap have become more measured, particularly after reports that the company delayed the launch of a new AI model to May due to performance concerns.

This moderation in expectations could improve the stock’s risk-reward profile, although the analyst cautioned that patience will be required as the company scales its AI investments.

Meta is pursuing an ambitious strategy, with plans to invest as much as $600 billion in compute infrastructure and talent through 2028 to strengthen its position in consumer AI applications.

The lower price target of $765, down from $856, reflects a reduced valuation multiple applied to longer-term earnings forecasts.

Alphabet cloud growth in spotlight

For Alphabet, attention is likely to centre on its cloud business, which continues to emerge as a key growth driver.

Wells Fargo forecasts cloud revenue of $19.7 billion for the first quarter, implying 61% growth year-on-year and a notable acceleration from 48% growth in the previous quarter.

This is also well ahead of broader market expectations of around 50% growth.

Wells Fargo has lowered its price target on Alphabet to $361 from $397.

The firm expects that improving cloud performance could lead analysts to revise their estimates for Alphabet’s revenue and operating income upward, particularly after a period of pressure on free cash flow projections.

While Alphabet typically does not provide detailed second-quarter guidance, management is expected to highlight strong demand for compute capacity while remaining cautious about global macroeconomic conditions.

Wells Fargo maintained its capital expenditure forecast of $175 billion to $185 billion, reflecting continued heavy investment in AI and cloud infrastructure.

Valuations reset but long-term case intact

Both Meta and Alphabet have seen some valuation compression in recent months.

However, analysts argue that the long-term investment case remains intact, supported by expanding addressable markets and the integration of artificial intelligence across their platforms.

Citizens has also reiterated a positive stance on Alphabet, with a $385 price target, citing its strong positioning in AI-driven search and cloud services.

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