Alphabet increases AI spending but gets rewarded for further proof that it's paying off

Alphabet reported a monster quarter, with revenue more than $2.5 billlion ahead of expectations and earnings nearly doubling the Street estimate. Revenue in the first quarter increased 22% year-over-year to $109.9 billion, well ahead of the $107.2 billion expected, according to LSEG data. Earnings per share surged 82% to $5.11, well ahead of the LSEG-compiled consensus estimate of $2.63. GOOGL YTD mountain Alphabet YTD Shares of the Google parent company jumped more than 6.5% on the print in after-hours trading. As of Wednesday's nearly record-high close of around $350, the stock was already up nearly 12% year to date. Club names Meta Platforms , Amazon , and Microsoft also reported earnings after the bell. Bottom line Alphabet posted beats in search, subscriptions, and cloud — its three most consequential segments — that more than offset small misses in YouTube advertising, Networks, and Other Bets. That explains the top-line beat. One notable call out was a 48% increase in cloud revenue, which resulted in an over 200% increase in cloud operating income. As for the phenomenal EPS, the team kept costs under control and realized strong year-over-year margin expansion. The Street was expecting a marginal contraction for the key profit metric. Along with the other clear indicators that artificial intelligence investments are paying off (more on that in a bit), these results are helping investors stomach the massive levels of AI infrastructure spending, even as the team told investors to expect even higher levels in the year ahead. Regarding capital expenditures, Alphabet is now including investments relating to the acquisition of data center and energy infrastructure solutions provider Intersect, which was finalized in March. As a result, Alphabet now sees capex for full-year 2026 between $180 billion and $190 billion, a $5 billion increase at the midpoint, and well above the Street's estimate of just over $175 billion. "We are seeing unprecedented internal and external demand for AI compute resources," CFO Anat Ashkenazi said on the post-earnings conference call. "The investments we are making in AI [are] delivering strong growth, as evidenced by the record revenue and backlog growth in Google Cloud and strong performance in Google services. Looking ahead, these strong results reinforce our conviction to invest the capital required to continue to capture the AI opportunity. As a result, we expect our 2027 capex to significantly increase compared to 2026." This is a perfect example that while Wall Street may be on edge about spending, investors are willing to give management teams a pass, so long as they can consistently demonstrate that those investments are paying off. That's exactly what we're seeing with Alphabet's results, and we are, therefore, increasing our price target to $400 from $350. We are also reiterating our buy-equivalent 1 rating. We think Alphabet should be a staple in any portfolio, but would advise patience Thursday if the after-hours rally were to hold. For the Club, we may very well opt to book some profits around Thursday's open, given our position size and the arch of our purchases since re-initiating a position on Dec. 29, 2025. Shares are up about 30% since their Iran war lows in March. Why we own it Alphabet has gotten its mojo back. The latest Gemini artificial intelligence model wowed investors while drawing attention to Google's custom chips co-designed with Broadcom . Google has also been chosen as Apple 's partner for AI. Put all that together with search still dominating and cloud growth off the charts, Alphabet would be great in any portfolio. Competitors : Amazon , Microsoft , and Meta Platforms Weight in portfolio : 3.27% Most recent buy : April 6, 2026 Initiated : Dec. 29, 2025 Commentary AI experiences helped drive Search usage and queries to an all-time high. Google Cloud growth accelerated to 63% year over year, up from the 48% growth rate we saw in the fourth quarter of last year. Better yet, Google Cloud's backlog nearly doubled on a sequential basis, exiting the quarter at $460 billion. Adoption of the Gemini app resulted in a record quarter for Alphabet's consumer AI offerings. Gemini Enterprise saw paid monthly active users increase 40% sequentially. The number of $100 million to $1 billion deals also doubled versus the year-ago period. Companywide paid subscriptions exited the quarter at 350 million, thanks largely to YouTube and Google One. First-party LLMs, like Gemini, realized a 60% sequential increase in token-per-minute usage to 16 billion. In AI speak, a token is a unit of data. Alphabet's latest generation of tensor processing units (TPUs), co-designed by fellow Club name Broadcom, is delivering 80% better performance versus the prior generation. Waymo, Alphabet's self-driving vehicle initiative, is now doing over 500,000 fully autonomous rides per week. With six new cities launched since the start of the year, Waymo now operates in 11 major cities across the U.S. (Jim Cramer's Charitable Trust is long GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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