The Google parent reported better-than-expected revenue, led by Google Cloud, where sales jumped more than 80% from a year earlier. The results show that Alphabet is benefiting from growing demand for AI services as businesses continue investing in cloud computing.

Still, the strong earnings weren’t enough to keep the Street happy. 

GOOG said it now expects to spend between $195 billion and $205 billion on capital expenditures this year, up from its previous forecast of $180 billion to $190 billion. The increased spending will help fund new data centers, AI infrastructure and the development of more advanced AI models.

The higher investment plans sent shares down.

AI Remains Alphabet’s Top Priority

Alphabet has been moving quickly to roll out AI products across its business. The company has integrated its Gemini AI model into Google Search, launched the Gemini Spark personal AI agent and expanded Google AI Studio for developers building AI applications.

The challenge is that all of those initiatives require enormous investment. With competition heating up—especially from Chinese AI companies—Alphabet believes it needs to keep spending aggressively to remain a leader.

Many Wall Street analysts agree.

Roth analysts mentioned that Alphabet’s rising AI costs could pressure profits over time, but believe the spending is necessary. “We are increasingly worried about long-term structural capital requirements to keep Google winning,” said the firm, as quoted by CNBC. “But we view rising capital expenditures as necessary to capture a rapidly expanding AI market.”

Their advice to investors was simple: buy the stock after the pullback. Roth maintained its Buy rating and a $440 price target.

Wall Street Still Sees Upside

Several other firms also remained bullish, even after lowering their price targets to reflect the higher spending outlook.

Citizens kept its Outperform rating and has one of the highest price targets on the Street at $515. Analysts said the bigger question isn’t how much Alphabet is spending on AI, but whether those investments continue to produce strong returns. So far, he believes they have.

JPMorgan also sees the recent weakness as a buying opportunity. Analysts lowered their price target to $420 from $460 but said GOOG is already seeing returns from its AI investments across Search, Google Cloud, and subscription businesses.

Evercore ISI took a similar view. Although the firm expects higher spending to reduce future free cash flow, analysts said GOOG’s long-term investment story remains intact. Evercore maintained its Outperform rating and a $420 price target.

Cantor Fitzgerald also lowered its target to $420 while keeping its Overweight rating. Analysts called the second quarter a strong one and pointed to Alphabet’s continued work on Gemini 4, its next-generation AI model, as another reason to stay positive on the stock.

Citi remained optimistic as well, keeping its Buy rating and $447 price target. Analysts said Alphabet’s AI investments are already driving growth in both Search and Cloud and should continue supporting the business over time.

Alphabet: The Bottom Line

Overall, Wall Street’s message was largely consistent. Alphabet’s higher AI spending may weigh on profits and cash flow in the near term, but most analysts believe those investments are necessary to maintain the company’s leadership in artificial intelligence.

While investors reacted negatively to the increased spending guidance, analysts largely see the pullback as a short-term concern rather than a change to Alphabet’s long-term outlook. With Google Cloud growing rapidly, AI products expanding across its ecosystem, and most firms maintaining Buy or Outperform ratings, many believe GOOG remains well-positioned for future growth despite the higher costs.

The biggest focus will likely be artificial intelligence infrastructure spending. Alphabet, like other technology giants, is investing billions of dollars into data centers, specialized computer chips, and other equipment needed to support the rapid growth of AI services.

Analysts expect the company to report adjusted earnings of $2.88 a share on revenue of $117.1 billion. Advertising revenue is expected to reach $81.3 billion, up 14% from a year earlier. Google search revenue is projected to rise 17% to $63.4 billion, showing that the company’s most important business remains resilient despite concerns that artificial intelligence could eventually disrupt traditional search.

Capital Spending Takes Center Stage

But the headline number investors will be watching may not be revenue or earnings. 

It will be capital spending.

Analysts expect Alphabet’s capital expenditures for the quarter to total $45.1 billion, more than double the $22.4 billion the company spent during the same period last year. The increase reflects a broader industry race among technology companies to build the computing infrastructure required to power AI models and applications.

Alphabet previously told investors that 2026 capital spending would likely fall between $180 billion and $190 billion. However, spending could rise further if the cost of advanced chips, servers, and other AI-related equipment continues increasing. 

In June, Alphabet announced plans to raise $80 billion through equity sales to help finance its 2026 and 2027 capital investment plans.

Wall Street Wants Proof the Investment Is Paying Off

Evercore ISI noted that Alphabet’s finance chief previously indicated that 2027 capital expenditures could increase significantly compared with 2026. “If management is warning investors about higher spending ahead, the eventual numbers could be substantial,” they added, as quoted by Barron’s. 

For investors, the question is not simply how much Alphabet spends — it is whether those investments generate meaningful returns. The company needs AI services to become a major source of revenue over time to justify the high costs involved in building the technology.

Google Cloud Could Provide the Biggest Clue

One important area to watch will be Google Cloud, Alphabet’s business that provides computing services to companies and organizations. Cloud growth has become a key measure of whether businesses are willing to spend money on AI tools and infrastructure.

Analysts expect Google Cloud revenue to increase 63% from the prior year to $20 billion. 

A strong cloud performance could also offer clues about the upcoming results from other major cloud providers, including Microsoft and Amazon.com. Investors are looking for signs that AI demand is translating into real business growth rather than simply driving higher expenses.

Helping, analysts at Bank of America say Alphabet is positioned for strong growth, citing the company’s advantages across AI models, custom chips, consumer products, and enterprise services. He rates the stock a Buy with a $430 price target.

What Alphabet Must Prove

Investors will likely want to see strong guidance, confidence that AI investments are paying off, and evidence that the company can turn its technology leadership into long-term revenue growth. For Alphabet, the report is about more than another quarter of financial results. It is a test of whether the company’s massive AI spending spree can deliver the next phase of growth.

“Earnings growth has powered the entire S&P 500 return so far this year, and we expect this dynamic to continue in the coming months,” said the firm. “The increase in consensus forward EPS estimates has outpaced the S&P 500 price gain, resulting in a decline in the P/E multiple. In fact, during the past two years, near-term earnings growth has arithmetically accounted for the entire 40% rise in the S&P 500.”

The firm added that half of that EPS growth will be from AI infrastructure investment alone, which shows no signs of slowing.

• Amazon (NASDAQ: AMZN), for example, is committing about $200 billion to capex, including a massive $25 billion investment in Anthropic to build out compute infrastructure over the next decade.
• Alphabet (NASDAQ: GOOG) has plans to invest about $190 billion into AI data centers, software, and development.
• Meta Platforms (NASDAQ: META) is investing about $145 billion in AI capex.

Big Tech Spending Continues to Surge

Consider this. There are about 4,000 operational data centers in the U.S. right now. An additional 1,500 to 3,000 are being planned or under construction. According to Pew Research, the South has 754 planned data centers. The Midwest has 419 planned. The West has 277 planned, and the Northeast has about 106 planned. Globally, there are about 10,807. 

Big tech is pouring hundreds of billions of dollars into data centers to secure a substantial market position. By owning this critical infrastructure, companies ensure they can control the “AI factories” that will power the next generation of software.

Data Center Growth is Exploding

The artificial intelligence boom is still accelerating.

With the global AI market already surpassing $230 billion in 2024, analysts now see a clear path to multi-trillion-dollar expansion—and the next five years may deliver the strongest gains yet.

Forecasts now place AI’s value between $1.7 and $3.5 trillion by the early 2030s, with the most aggressive estimates topping $7 trillion by 2035. And judging by the surge in corporate investment, the market is moving toward the high end of those projections.

Analysts Say AI Momentum is Just Beginning

Warnings of an “AI bubble” are increasingly being dismissed by top analysts.

Goldman Sachs says, “it believes the AI story is just getting started – and the investments that seem huge today will be dwarfed by the benefits AI will deliver,” as noted by Quartz.com. 

Long term, the investment bank says that AI adoption could add $20 trillion to the U.S. economy. AI, according to Goldman Sachs, is already delivering those gains in productivity when deployed right.”

JPMorgan’s Mary Callahan Erdoes added, “AI is presenting opportunities not fully appreciated or understood yet,” as noted by CNBC. “AI itself is not a bubble. That’s a crazy concept… We are on the precipice of a major, major revolution in a way that companies operate.”

“So, if you say to yourself, is AI in a bubble, I feel you have to get very granular on how you’re going to answer that, because in the U.S., we’re starting to gain traction, but we’re nowhere near the ability to have the stuff all to the bottom line.”

The Upside Potential in the S&P 500 is Still There For Investors

With billions of dollars continuing to flow into AI infrastructure, software development, and next-generation data centers, Wall Street is becoming increasingly confident that the artificial intelligence boom still has years of growth ahead. 

Goldman Sachs’ higher S&P 500 target reflects that optimism, especially as AI-driven productivity gains begin showing up in corporate earnings. 

So far, the market has responded positively to the tech juggernaut that owns the massive Google ecosystem. Since the beginning of January, GOOGL stock moved up over 5%. In the trailing 52 weeks, the security shot up over 65%. Of course, with so much positive news likely baked in, the natural tendency is for investors to trim exposure.

The upcoming fourth-quarter earnings report may be the spark that sets everything in motion. Wall Street analysts are looking for earnings per share to hit $2.62 on revenue of $104.67 billion. In the year-ago quarter, Alphabet posted EPS of $2.15 on revenue of $96.47 billion. This performance beat the earnings estimate of $2.13 but slightly missed the sales target of $96.67 billion.

Coincidentally, the Q4 print of 12 months ago represented the last time Alphabet failed to deliver a clean report. While it’s impossible to say with absolute certainty what may transpire, it does appear that analysts are generally optimistic about GOOGL stock, particularly as the underlying company shifts its artificial-intelligence protocols into higher gear.

Now, truth be told, I’m not the biggest fan of earnings season because of the highly kinetic disruption that can materialize. That said, a careful interpretation of the options market and the structural data of GOOGL stock may be pointing to a surprisingly bullish outlook.

How the Volatility Skew for GOOGL Stock Signals Opportunity

Before placing a trade, market participants should consider the volatility skew of optionable securities. This screener shows the implied volatility (IV) — which is basically the level of expected kinesis — for various strike prices on the same expiration date. For GOOGL stock, puts feature much higher IV relative to calls on strike prices south of the current spot price for the Feb. 20 options chain.

What’s going on here? Traders are likely buying downside insurance, which is why the premiums for put options — which provide holders the right to sell the underlying security at the listed strike price — have soared. Fundamentally, the protective posture makes sense because of the impressive performance of GOOGL stock. At any moment, it’s possible that a sharp devaluation may occur, perhaps due to a shock catalyst.

Adding to this narrative, puts also carry a premium on strike prices above the spot price. Again, this dynamic underscores the primary motif: the smart money is prioritizing downside protection over upside speculation.

At first glance, the strong presence of puts from the volatility skew implies fear — and fear doesn’t exactly seem like a great emotion for bullish investors. Ironically, though, it could be the supporting structure that helps GOOGL stock march higher.

First, while the volatility skew indicates fear, it does not indicate panic; otherwise, you would see actual selling. The fact that the negativity is concentrated in put activity rather than a rush for the exits tells you that the smart money is, well, being smart about their optimism. It’s quite clear that they see value in the AI story — the story that the Q4 earnings report could further illuminate. It’s just that they also want protection.

Second, fear may be a positive for GOOGL stock because it allows the bulls to sustainably nibble on capital appreciation rather than to gobble it. It’s the latter action that typically sparks the reflexive move to panic out of a hot position. That’s not to say that GOOGL stock can’t fall from here because it can. However, we have some confidence that the upside is controlled and disciplined.

Narrowing Down the Search for Efficiency

Based on the current volatility metrics and accounting for days to expiration, the Black-Scholes model for the Feb. 20 options chain is signaling a forward dispersion between $305.26 and $357.08. Essentially, this range represents where prices may fall if they landed symmetrically within one standard deviation from the spot price. Stated differently, 68% of the time, GOOGL stock by Feb. 20 should land between $305 and $357.

On paper, that’s great information because we now have a solid understanding of where the battlefield’s parameters are. However, most retail traders are on the debit side, which means that they pay a premium for the right to speculate on events that have yet to materialize. Therefore, the problem of the above dispersion is that it’s incredibly wide — nearly 8% in either direction from spot and a gap of just under 17% between the two prices.

You can see the problem. If you buy a long straddle type of investment (such as an iron condor), you would pay a debit to “attack” both a bullish and bearish target. That’s a double premium, and if you’re wrong on the trade, you’ll end up with a massive principal loss. So, we need to find a way to narrow the above dispersion, and that’s where the Markov property comes into play.

Markov claims that the future state of a system depends solely on the current state. Simply, this means that forward probabilities will change based on the context of the present environment.

For GOOGL stock, it’s entering the field of battle having printed eight up weeks in the last 10 weeks, creating an upward slope. Under this 8-2-U sequence, GOOGL will be expected to range between $310 and $380 over the next 10 weeks, with probability density peaking between $335 and $350. That brings the addressable gap down to 4.5% between the two prices.

Over the next five weeks, GOOGL stock would likely trade between $330 and $350, with probability density peaking at around $343. Now, we have a clear target to zero in on.

Letting the Data Do the Heavy Lifting

One little gift that volatility skew has provided is that, on a relative scale, GOOGL stock is actually underpriced. That’s because with so many traders buying downside protection, the IV for GOOGL calls is comparatively low. We may take advantage of that.

Right now, traders can buy the 337.50/340 bull call spread expiring Feb. 20, 2026, which requires a net debit of $120 (the most that can be lost). Should GOOGL stock rise through the second-leg strike ($340) at expiration, the maximum profit would be $130, a payout of over 108%. Breakeven lands at $338.70.

For this trade to be fully profitable, GOOGL would only need to rise less than 3% from Thursday’s close. That’s a realistic target based on both technical and fundamental momentum. It’s just that the payout is unusually generous because of the fear premium. However, this opens the door to a compelling contrarian trade.