Alphabet (GOOGL) shares have surged approximately 130% over the past year, bringing the tech giant’s market cap close to Nvidia’s, despite a recent pullback. The strong performance is largely attributed to Google Cloud’s impressive growth, with revenue soaring 63% year-over-year to $20 billion, driven by a substantial backlog of contracted revenue. However, CEO Sundar Pichai noted that the company is currently “compute constrained,” suggesting that even stronger results could have been achieved if supply could meet demand.
While Alphabet’s fundamentals remain robust, the company’s capital expenditures are on the rise, with projections for 2026 set between $180 billion and $190 billion, a significant increase from previous estimates. This upward trajectory in spending, particularly as it relates to AI investments, raises concerns about future profitability and margin pressures as depreciation from these expenditures begins to impact the income statement.
Given the substantial run-up in share price and the evolving spending outlook, market professionals may want to reassess their positions. Alphabet now appears more of a hold than a buy, especially for those sitting on significant gains.
Source: fool.com