TLDR
- Alphabet plans to increase capital spending to as much as $185 billion in 2026, far exceeding analyst expectations of around $120 billion.
- Search revenue grew 17% and Google Cloud sales surged 48% in Q4, with cloud backlog jumping from $155 billion to $240 billion.
- Piper Sandler raised Alphabet’s price target from $365 to $395 while maintaining an Overweight rating on strong Q4 results.
- Morgan Stanley estimates free cash flow per share could drop 58% in 2026 and up to 80% in 2027 due to the spending increase.
- Meta plans similar AI investments with $135 billion capex, while Microsoft and Amazon face pressure to justify their spending after disappointing cloud results.
Alphabet shocked Wall Street by announcing capital expenditures could reach $185 billion this year. The number crushed previous analyst estimates of roughly $120 billion.
The tech giant’s massive spending plan comes after posting strong Q4 2025 results. Search revenue climbed 17% year-over-year while Google Cloud revenue exploded 48% higher.
Total revenue growth accelerated to 18% in the fourth quarter. That beat Piper Sandler’s forecast of 15.5%. EBITDA also came in about 2% above expectations.
The real story sits in the cloud numbers. Google Cloud’s backlog jumped from $155 billion to $240 billion in just one quarter. That represents a massive pipeline of future revenue.
Piper Sandler responded by lifting its price target on Alphabet stock from $365 to $395. The firm kept its Overweight rating intact.
Other analysts followed suit. BMO Capital raised its target to $400. JPMorgan bumped its price target to $395. DA Davidson increased its target to $310.
AI Spending Becomes Priority
The spending surge reflects a broader pattern across Big Tech. Meta announced plans to spend $135 billion on capex this year. The social media company said AI improvements are boosting advertising effectiveness.
But not every tech giant can justify the expense. Microsoft stock dropped 10% after disappointing cloud results. The company shed more than $350 billion in market value. Amazon faces similar pressure with AWS growth concerns.
Alphabet’s strength in search and cloud revenue gives it financial flexibility. The company can afford the spending spree without immediate cash concerns.
Morgan Stanley projects the costs will hit soon. Free cash flow per share could fall 58% in 2026. The drop could reach 80% in 2027 as the spending feeds through.
Short-Term Pain for Long-Term Gains
Alphabet is trading near-term cash returns for future positioning. The bet assumes AI infrastructure will generate durable growth over time.
YouTube showed some weakness in Q4. Growth decelerated despite strength in other segments. Search and Cloud both accelerated during the quarter.
The company sits between two possible outcomes. Strong ad and cloud growth suggest early AI returns are materializing. But the spending scale means execution risk is climbing.
If the new capacity drives sustained revenue growth, the investment will look smart. If growth slows, Alphabet could face a cash crunch with higher investor expectations.
Several analysts maintained positive ratings despite the capex concerns. Cantor Fitzgerald kept its Overweight rating with a $370 price target. Stifel also raised its target to $395.
DA Davidson highlighted the Cloud division’s acceleration in its analysis. The firm pointed to strong earnings across business segments.
The cloud backlog increase provides some justification for the spending. It shows demand for AI infrastructure and tools is building fast.
Alphabet is betting that spending first keeps it ahead of competitors. The strategy puts pressure on rivals to match the investment or fall behind.
The market will watch closely for proof the returns justify the costs. Revenue growth needs to keep pace with the massive capex increases.
For now, Alphabet’s financial strength allows it to make the bet. The company generated enough cash from search and cloud to fund the expansion.
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