Alphabet: one of the world’s largest developers of internet services

Alphabet (GOOGL) is Google’s parent company, bringing together the search business, YouTube, the Google Cloud platform, and artificial intelligence R&D. Rising AI spending is weighing on the stock; however, rapid expansion of the cloud business, external demand for its in-house TPU chips, and lower regulatory risks create opportunities for investment payback.

Investment appeal factors:

• Google Cloud is growing faster than competitors. In Q2 2026, cloud segment revenue increased 82% y/y to $24.8 billion. The volume of signed but not yet fulfilled contracts reached $514 billion versus $106 billion a year earlier. Alphabet plans to recognize more than half of this amount as revenue within two years, improving the visibility of further growth.
• The cloud business is simultaneously improving profitability. Google Cloud’s operating margin rose from 20.7% to 35.6%. This shows the segment is already profitable and can partially offset Alphabet’s increased spending on building computing infrastructure.
• In-house TPU chips are becoming a separate revenue stream. Alphabet initially used TPUs to reduce dependence on purchases of Nvidia accelerators, but the company is now selling these solutions to external customers and deploying them in third-party data centers. Anthropic has contracted five gigawatts of compute capacity, and Broadcom has confirmed the rollout of one gigawatt as early as this year.
• High capex is supported by rising demand. Alphabet raised its 2026 CAPEX guidance to $195–205 billion, which is weighing on the share price. At the same time, a $514 billion cloud contract backlog, higher Google Cloud margins, and external demand for TPUs provide a foundation for the payback of these investments.
• A court ruling reduced the risk of a breakup of the advertising business. On September 2, a Virginia court denied the U.S. Department of Justice’s request for the forced sale of the AdX ad exchange and part of the DFP publisher ad server, limiting remedies to behavioral requirements. The ruling does not affect the search business and YouTube, and the risk of a forced asset breakup that had persisted since April 2025 did not materialize.

Target price: $400