quick read
Investors like Buffett and the authors are still buying GOOGL, as it trades at a P/E of just 26, despite search revenues increasing by 19% and cloud revenues skyrocketing by 63%.
Microsoft is seeing overall revenue growth of 18%, while Alphabet’s cloud revenue reflects a 63% increase. It’s interesting to note that META doesn’t have any cloud offerings, whereas GOOGL stands out with its robust AI valuation.
Capital expenditures spiked by 107% to $36 billion, significantly cutting into free cash flow. However, Alphabet’s cloud backlog of $460 billion shows that its investments are substantial.
It’s worth noting that analysts who correctly predicted NVIDIA’s rise in 2010 have now named it among their top 10 AI stocks—curiously, Google didn’t make that list.
Consider investing in Alphabet (NASDAQ:GOOGL). This company operates essentially like a toll booth for the internet, and it seems like these tolls are only going to increase. Warren Buffett seems to agree, as I’ve been a buyer myself.
The logic is straightforward. Google Search has a self-sustaining cycle: more queries result in better data; better data leads to more precise targeting; better targeting attracts increased ad spending, which then funds further improvements. Buffett appreciates Alphabet’s competitive edge in this cycle and recognizes their financial strength, allowing them to invest in custom AI technologies and global data centers. Smaller companies can hardly compete without risking their stability. Personally, I prefer owning a piece of this tollbooth model.
receipt behind conviction
Let’s start with the basics. In the first quarter of fiscal 2026, Google’s search and other revenues grew by 19% to $60.4 billion. CEO Sundar Pichai mentioned that “inquiries were at an all-time high.” This company, which has been around for two decades, continues to expand rapidly.
Next, look at the other aspect. Google Cloud’s revenue jumped by 63% to $20.03 billion, with its backlog nearly doubling to over $460 billion in just a quarter. This backlog indicates that many customers have made long-term commitments to pay Alphabet.
And don’t forget, analysts who saw NVIDIA’s potential years ago have ranked their top AI stocks, but interestingly, Google isn’t featured.
The economics of this operation are what keep me buying. With a return on equity of 38.9%, profit margin at 37.9%, and operating margin of 36.1%, Alphabet has disclosed earnings per share of $5.11, significantly above the $2.63 consensus. The stock price has surged 83.14% in the last year, and with a P/E ratio of 26, I still consider it a buy.
Why not Microsoft or Meta?
A prominent alternative could be Microsoft (NASDAQ:MSFT). Sure, Azure is a valid contender in the cloud space, but I’m opting out. Microsoft’s overall revenue grew by just 18.3%, while Alphabet’s cloud revenue grew at 63%. Although they share comparable price-to-sales ratios—10.17x for Alphabet versus 9.39x for Microsoft—I’m paying a similar multiple to get faster growth and broader market appeal.
real risk
One concern that keeps me awake at night is capital concentration. This last quarter saw capital spending soar by 107.44% to $35.67 billion, with projections suggesting it could reach between $175 billion and $185 billion by 2026. Free cash flow plummeted by 46.63% year-over-year to $10.12 billion. If demand for AI falls short, that financial commitment could turn into a significant burden.
Yet, I remain committed because the outstanding debt is manageable; operating cash flow is still up by 26.67%. The very capital that’s affecting free cash flow is also its protective barrier. Only a few companies globally can manage such substantial expenses from their operating revenues.
Alphabet essentially controls the toll booths, funding each extension through its earnings while gradually raising toll prices, now at $0.22 in dividends. That’s why I’m still eager to buy.
The hint remains: analysts who foresaw NVIDIA’s rise have listed their top AI stocks, and intriguingly, Google is absent.
