Alphabet’s Cloud Surge and AI Dominance Overshadow Capex Fears and Keep Me Buying
Wall Street keeps punishing Alphabet for its spending, but the cloud and AI numbers tell a completely different story about where this company is heading.
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I keep adding to my Alphabet (NASDAQ:GOOGL | GOOGL Price Prediction) position, and every earnings report supports my thesis. Wall Street spent the summer worrying about how much Alphabet spends. I spent it reading what Alphabet makes.
My thesis: Alphabet owns the world’s dominant search engine and the largest online video platform, and it is putting that cash into a cloud and AI business that keeps growing faster. The established business pays for the new one. In a retirement portfolio built to compound for decades, I want that combination.
Google Cloud Growth Keeps Speeding Up Every Quarter
Google Cloud revenue grew 34% in Q3 2025, 48% in Q4, 63% in Q1 2026 and 82% in Q2 2026, when it reached $24.77 billion. Customers are signing long commitments: the cloud backlog nearly doubled from the prior quarter to over $460 billion in Q1. Nearly 90% of the Fortune 100 use Gemini Enterprise, and Gemini models process 22 billion API tokens per minute. The Gemini app has reached 950 million monthly active users.
A Core Business That Pays for the Future
Total Q2 revenue came in at $119.80 billion, up 24.23%. That makes the 12th straight quarter of double-digit growth. Search and other brought in $63.27 billion, up 17%, as AI features lifted query growth. Operating margin expanded by 2 points to 34%, and operating income rose 30.38% to $40.77 billion.
I discount the headline EPS of $9.11, because a $99.03 billion gain on equity securities ballooned net income. Operating income is the number I track. Even so, Alphabet trades at about 16 times earnings. The company raised its dividend 5% to $0.22 per quarter. The 0.49% yield is small, yet a rising payout backed by 175.5x interest coverage shows discipline.
Why My Money Goes Here Instead of Microsoft and Amazon
Most readers would start with Microsoft (NASDAQ:MSFT), which has Azure and its OpenAI partnership, or Amazon (NASDAQ:AMZN), the long-time leader with AWS. Over the past year, Alphabet shares returned 39.48%, compared with 5.94% for Microsoft and 18.18% for Amazon. Over five years, Alphabet gained 149.39%, against 84.78% and 49.46%. Past returns guarantee nothing. Still, Alphabet gives me cloud growth I can track quarter by quarter, plus Search and YouTube. YouTube alone brought in more than $60 billion in 2025 across ads and subscriptions.
Why Alphabet’s Capex Surge Is the Risk I Take Seriously
Spending is the part that worries me. Q2 capex reached $44.92 billion, up 100.14%, which pushed free cash flow to negative $5.86 billion. Management guided 2026 capex to $175 billion to $185 billion. Long-term debt grew from $46.5 billion to $98.2 billion, the buyback is suspended, and a $49.6 billion net equity raise reduces my stake. If AI demand stalls, all of that hardware turns into dead weight. All of that spending also has to be powered, cooled and networked by somebody, and we put seven of those suppliers in a free AI infrastructure report.
My thesis still holds because the demand shows up in the numbers. Operating cash flow rose 40.8% to $39.07 billion in Q2, and debt-to-equity is only 0.143. Much of the new capacity is going to backlog that customers have already signed. A Barron’s report on October 15 highlighted J.P. Morgan’s view that Google can resist AI fears.
Three Alphabet Metrics Worth Tracking Every Quarter
Each quarter I watch three numbers: cloud growth, backlog and operating margin. As long as they hold, I keep adding. Alphabet makes money today while building its cloud and AI infrastructure, and I plan to own both for as long as I invest.
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Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
