TLDR
- Multiple Wall Street firms upgraded Alphabet stock to Buy, pushing shares up 1.8% on strong Google Cloud performance
- Google Cloud posted 30% year-over-year growth and now rivals Amazon Web Services in profitability
- Alphabet plans to spend $91-93 billion on capital expenditures this year to fund AI development
- Company is developing custom AI chips (TPUs) to compete with Nvidia, with leaks suggesting launch next year
- Goldman Sachs expects Alphabet to contribute to 46% of total S&P 500 earnings growth in 2026
Alphabet stock caught Wall Street’s attention this week after several major firms upgraded their ratings on the Google parent company. The upgrades came as analysts pointed to Google Cloud’s impressive growth numbers.
Shares rose 1.8% following the analyst notes. Multiple firms moved their ratings to Buy, citing the cloud division’s momentum.
Google Cloud grew 30% year-over-year according to the latest reports. The segment now rivals Amazon Web Services in profitability, marking a major shift for Alphabet’s business mix.
The company’s market capitalization has reached almost $3.9 trillion. That puts Alphabet ahead of Microsoft, which recently pulled back to $3.6 trillion.
This represents a flip from earlier years when Microsoft was substantially larger. The change happened as Alphabet proved it could compete in the AI race despite early concerns.
AI Chips and Cloud Investments
Alphabet is pushing forward with development of its custom AI chips. The company wants to reduce its reliance on external suppliers like Nvidia.
Recent leaks suggest new Tensor Processing Units (TPUs) could launch next year. Investors have responded positively to signs the company is accelerating this work.
The chip development comes as Alphabet plans massive spending on infrastructure. The company expects to invest $91 billion to $93 billion in capital expenditures this year alone.
Despite that heavy spending, Alphabet generated nearly $74 billion in free cash flow over the last 12 months. That shows the company can afford these investments while maintaining strong finances.
Google Gemini has emerged as a serious competitor to ChatGPT in recent months. The AI engine has become the site of choice for real-time information and video generation.
Analyst Projections Through 2026
Goldman Sachs included Alphabet among seven tech giants expected to drive earnings growth. The firm projects these companies will contribute to 46% of total S&P 500 earnings growth in 2026.
The list includes Nvidia, Apple, Microsoft, Amazon, Broadcom, and Meta alongside Alphabet. Goldman expects productivity gains from AI to boost revenue for all these companies.
Alphabet currently trades at a price-to-earnings ratio of 32. That’s close to the S&P 500 average of 31, even after shares gained around 70% so far this year.
The stock’s valuation looks reasonable compared to its growth prospects, according to several analysts. This contrasts with earlier periods when investors worried AI might hurt Google’s search business.
Alphabet’s free cash flow gives it room to keep funding Gemini improvements and other AI projects. The company also continues investing in Google Cloud and its Waymo autonomous driving platform.
Analysts point out that Alphabet spent more than Microsoft on capital expenditures this year. The company plans to use those funds to strengthen its position across multiple AI-related businesses.
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