Google stock recovers as new high $900 target set

By Ramya Dilip and Eric Auchard

BANGALORE/SAN FRANCISCO (Reuters) - Google shares recovered from a two-week slump, gaining as much as 5 percent on Tuesday after a broker set a $900 target, a new Wall Street high, arguing the company is poised to monopolize Web search.

"We believe that search is a natural monopoly business and expect that over time Google will continue to gain share until they have effectively reached 100 percent," Credit Suisse analyst Heath Terry advised investors in a note on Tuesday.

Credit Suisse raised its target on Google Inc (GOOG.O) to $900 from $800, citing anticipated growth over the next five years in online advertising by corporate brands and local marketers and ads on mobile phones.

These are natural extensions of Google's vast business delivering text ads alongside Web search results, Terry said.

Google shares jumped as much as 5.3 percent before settling back to $645, up 3 percent, in midday trading on Nasdaq.

Wall Street analysts, on average, estimate Google shares could trade at $761 in the next 12 months. The lowest estimate is $670. If the stock achieves Credit Suisse's $900 target, it would represent a 40 percent gain.

The stock shot to new highs in early November after many analysts set aggressive new price targets around $800 or more. It has fallen in recent weeks on concerns about the slowing U.S. economy.

Google should benefit from increasing market share gains as its mounting scale makes it more difficult for rivals to justify the heavy investments in technology necessary to keep pace in the search market. Google's search business can grow 38 percent a year over the next five years, Terry forecast.

RBC Capital analyst Jordan Rohan argues that while he is bearish on the U.S. economy, Google is likely to prove more recession-proof than many other Internet stocks, thanks to market share gains and its international strength.

"The Google business model fits perfectly an economic environment which is requiring a results-based justification of every marketing dollar spent," he said in a research note published on Monday. He has a 12-month Google target of $725.

Of 33 financial analysts surveyed by Reuters Estimates, 31 recommend investors buy the stock and two are "neutral" on the stock's prospects relative to other potential investments.

In the last few years, Google has gained a percentage point of Web search market share every two months, implying an ever-growing audience for its ad business, Terry said.

Credit Suisse forecast the U.S. online advertising market would grow 27.5 percent in 2007 and 28.3 percent in 2008.

(Editing by Braden Reddall)