Shares of Alphabet Inc. surged on Thursday after the company delivered a strong first-quarter earnings report, easing investor concerns over its rising capital expenditure tied to artificial intelligence infrastructure.
The stock gained 7.74% to $374.22, its 52-week high, as markets responded positively to robust growth across its cloud and core advertising businesses, even as spending on AI data centers continues to accelerate.
Cloud and AI demand drive upside surprise
Alphabet reported earnings per share of $5.11, significantly above Wall Street expectations of $2.63 and up from $2.81 a year earlier.
Revenue reached $110 billion for the quarter, surpassing forecasts of $107 billion and marking a 22% year-on-year increase.
The standout segment remained Google Cloud, where revenue jumped 63% to $20 billion.
The unit also posted a 33% operating profit margin, highlighting improved profitability despite rising depreciation costs linked to infrastructure investments.
Chief executive Sundar Pichai pointed to surging demand for enterprise AI solutions as a key driver.
For the first time, growth in the cloud division was led by these offerings, with sales increasing eightfold compared to a year earlier.
The cloud backlog nearly doubled to around $460 billion to $462 billion, underscoring sustained demand momentum.
However, Pichai acknowledged capacity constraints, saying, “Our cloud revenue would have been higher if we were able to meet the demand.”
Investors look past rising capital spending
Despite the upbeat earnings, Alphabet’s aggressive investment cycle remains a focal point.
The company said it would spend up to $190 billion on AI data centers this year, up from a previously indicated $185 billion, as it scales infrastructure to meet growing demand.
Capital expenditure reached nearly $36 billion in the first quarter alone, roughly double last year’s level, putting the company on track to meet its 2026 guidance.
These investments are already weighing on cash flow.
Free cash flow dropped to $10 billion during the quarter, and Alphabet did not repurchase shares, compared to $15 billion in buybacks during the same period last year.
The company also raised about $30 billion through debt issuance, pushing long-term debt to $77.5 billion, alongside $13 billion in lease liabilities.
Still, analysts appear reassured by the returns potential.
“Alphabet is reinvesting meaningfully into capex to support capacity needs for Search and Google Cloud. Given the sheer growth rates off large revenue bases, we are comfortable with returns from this investment cycle,” wrote KeyBanc analyst Justin Patterson, who raised his price target on the stock to $425.
Kathleen Brooks of XTB echoed this sentiment, noting that strong earnings have helped offset concerns around spending.
“Alphabet has proven that its AI investment is paying off, and its AI products and cloud computing businesses are making a meaningful difference to its bottom line,” she wrote.
Advertising remains a steady backbone
While cloud growth captured headlines, Alphabet’s core advertising business continued to provide a solid foundation.
Advertising accounted for around 70% of total revenue, growing 16% year-on-year, with search leading the way at 19% growth.
This strength helped offset a 4% decline in the company’s third-party ad network business, which has been under pressure.
As Alphabet doubles down on AI, investors appear willing to tolerate near-term margin pressure in exchange for long-term growth.
The company’s ability to translate surging AI demand into revenue—while managing escalating costs—will remain central to the stock’s trajectory in the quarters ahead.
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