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Credit Suisse, which had suspended coverage of Google (NASDAQ:GOOG) while it was working on the acquisition of YouTube - it served as an adviser to Google on the deal - today reinstated coverage of the company with an Outpeform rating and increased its target on the stock to $600 from $500.

“YouTube now positions Google as the top online video destination globally,” Credit Suisse analyst Heath Terry wrote in a research note this morning. “While impact of copyright issues is the key risk in the YouTube acquisition, we believe proactive moves made by both companies should limit that risk. Examining the most viewed videos on YouTube in November, under 35% of these videos may contain potential copyrighted material. While Google and YouTube have signed some agreements with the likes of CBS, Sony BMG, and Warner Music Group, and we expect others to sign on in the future, the number of content owners to be dealt with is nearly unlimited.”

Terry asserts that successful monetization of YouTube traffic could add $160 million in revenue in 2007,but that “as the company begins to take advantage of the amount of rich media ad inventory created by YouTube the potential revenue generation from the site likely to be more than 10x that estimate.”

In other words, he thinks YouTube can eventually generate $1.6 billion in annual revenue, which is about what Google is paying. If he’s right, then the deal is going to look like a bargain.

Terry says Google remains his top pick in the Internet group.

Google shares this morning are up $8.82 at $498.12.

GOOG 1-yr chart:

goog chart

Source: Google Nearing $500; Credit Suisse: It'll Go To $600