Freedom Broker analysts upgraded their rating on Alphabet Inc. (GOOGL) shares from “Hold” to “Buy” and kept the target price at $400. At the current price of $317.60, this implies upside potential of about 26%. According to the experts, accelerating Google Cloud growth and increasing AI monetization strengthen Alphabet’s long-term outlook despite record spending on AI infrastructure.
Alphabet is turning AI into a new growth engine
Alphabet is one of the world’s largest technology holding companies, bringing together the Google search engine, its advertising business, the Google Cloud platform, YouTube, Android, and in-house artificial intelligence development. According to Freedom Broker analysts, the company is increasingly turning AI investments into growth across several areas at once—from search advertising and cloud services to subscriptions and enterprise solutions.
Strong Google Cloud growth confirms resilient demand for AI infrastructure, while expanding AI monetization in Search creates additional opportunities for Alphabet’s revenue growth, the experts note.
Google Cloud was the quarter’s biggest surprise
In Q2 2026, Alphabet’s revenue grew 20% year over year to nearly $110 billion. The main driver of the acceleration was Google Cloud: its revenue jumped 82% to $24.8 billion, versus the market’s expected $22.2 billion.
Google Cloud’s operating profit more than tripled to $8.8 billion, and operating margin rose from 20.7% to 35.6%. Analysts believe these results confirm that the cloud business has moved from a promising direction to a full-fledged second profit engine for Alphabet after advertising.
Google Cloud’s order backlog increased by more than $50 billion over the quarter and reached $514 billion. At the same time, the number of new customers grew more than twice as fast as a year earlier, and nearly 90% of Fortune 100 companies used Gemini Enterprise.
Search holds its ground despite AI developments
Google Services revenue grew 15% to $94.5 billion. Advertising revenue increased 14% to $81.6 billion, while Google Search & other revenue rose 17% to $63.3 billion.
According to Freedom Broker analysts, concerns that generative AI will quickly disrupt Alphabet’s traditional internet search model have not yet been borne out. On the contrary, AI Overviews (an AI feature in Search) and AI Mode (Google’s conversational, multimodal search interface) are increasing the number of search queries and creating new opportunities to monetize complex queries. Monthly users of AI Mode have already exceeded 1 billion.
YouTube also became an additional source of growth: the platform’s advertising revenue rose 13% to $11.1 billion. Growth was supported by both brand advertising and direct-response formats, as well as expanded advertising capabilities for Shorts and Connected TV.
Record AI investments are weighing on free cash flow
Strong business performance is accompanied by a sharp rise in capital expenditures. In Q2, Alphabet almost doubled infrastructure investment—from $22.4 billion to $44.9 billion. Most of the funds are directed to servers, data centers, and networking equipment to support AI development.
As a result, free cash flow turned negative at −$5.9 billion versus positive $5.3 billion a year earlier. Operating cash flow, meanwhile, rose 41% to $39.1 billion.
Alphabet raised its 2026 capex guidance from $180–190 billion to $195–205 billion and warned that investments will also rise significantly in 2027. As a result, Freedom Broker analysts lowered their forecast for Alphabet’s operating margin in 2026 from 34.9% to 34.4%, and for 2027—from 35.9% to 33.1%.
Financial results remain strong
Alphabet’s gross profit increased 29% to $73.9 billion, and gross margin rose from 59.5% to 61.6%. Operating profit increased 30% to $40.8 billion, with an operating margin of 34%.
Net profit surged nearly fourfold to $112.1 billion, and diluted earnings per share rose from $2.31 to $9.11. At the same time, analysts note that a significant share of the net profit increase is tied to unrealized gains on equity investments: Alphabet’s other income amounted to $98 billion. Therefore, revenue, Google Cloud, and the advertising business are more important metrics for assessing the company’s operating momentum.
Alphabet revenue forecasts are raised
Freedom Broker raised its forecast for Alphabet’s 2026 revenue from $485.4 billion to $495.6 billion, and for 2027—from $575.3 billion to $601 billion. The key growth factors, analysts say, are continued AI monetization in Search, Google Cloud’s development, expansion of Gemini enterprise solutions, and the gradual scaling of in-house TPU chips.
Earlier, Alphabet also raised a significant amount of capital ($80 billion) to expand its AI infrastructure. Freedom Broker analysts noted that the scale of investments reflects strong demand for computing capacity and the company’s long-term bet on artificial intelligence.
In June, Alphabet was included in the Dow Jones Industrial Average, another reflection of the growing role of the technology sector in the U.S. economy.
This is not an individual investment recommendation.