Key Points
The tech giant’s first-quarter revenue growth was its fastest in years.
Google Cloud revenue surged 63% year over year, with the segment’s backlog nearly doubling sequentially.
Management indicated capital expenditures could climb meaningfully again in 2027.
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Shares of Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) have done what few mega-cap stocks ever do. They have roughly doubled and then some in just 12 months, climbing about 130%. That run has put the search giant’s market capitalization within striking distance of Nvidia‘s, even after a small pullback over the last few trading sessions.
For a while now, I’ve been calling Alphabet a buy. The thesis was straightforward: Google Cloud was inflecting, and the stock’s price-to-earnings ratio looked reasonable next to its growth. The thesis has been playing out nicely. But after the company’s first-quarter results sent shares even higher, the math has gotten harder.
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Yes, the underlying business is still firing on all cylinders. The question is whether the stock can keep pace — especially with one recent comment from management about 2027 weighing on the picture.
Image source: Getty Images.
Demand outrunning supply
Alphabet’s first-quarter results, reported in late April, were the kind of numbers that justify the stock’s recent run.
But what’s particularly incredible is that the results could have been even better if supply could keep up.
“We are compute constrained in the near term,” Alphabet CEO Sundar Pichai said during the company’s first-quarterearnings call adding that “our cloud revenue would have been higher if we were able to meet the demand.”
This is an incredible comment considering the company’s underlying cloud computing momentum even in a supply constrained environment. Google Cloud revenue jumped 63% year over year to $20 billion — an acceleration from 48% growth in the prior quarter.
Even more notable, the segment’s backlog — a measure of contracted but unrecognized revenue — nearly doubled sequentially to over $460 billion. That is roughly six years of cloud sales locked in at the current run rate.
The rest of the business held up, too. Total revenue rose 22% year over year to $109.9 billion — the company’s fastest growth rate since 2022 and an acceleration from 18% growth in the fourth quarter of 2025 and 16% in the third quarter. Google Services revenue climbed 16% to $89.6 billion, led by 19% growth in “Google search and other”. Paid subscriptions across the company’s products reached 350 million, and the board approved a 5% dividend hike alongside the report.
Where the math gets harder
But supplying all of that AI demand isn’t free. Alphabet’s capital expenditures came in at $35.7 billion in the first quarter alone, and management lifted its full-year 2026 spending range to $180 billion to $190 billion, up from a prior $175 billion to $185 billion.
The bigger surprise wasn’t 2026, however. It was 2027.
“Looking ahead, these strong results reinforce our conviction to invest the capital required to continue to capture the AI opportunity,” chief financial officer Anat Ashkenazi said during the call. “As a result, we expect our 2027 [capital expenditures] to significantly increase compared to 2026.”
For context, Alphabet’s full-year 2024 capital expenditures were $52.5 billion. Spending in 2025 climbed to $91.4 billion. If the 2026 range holds, the company will have more than tripled its annual capital expenditures in two years — with another meaningful step up still coming in 2027. That trajectory, of course, could pay off if AI demand keeps pace. But there’s less room for error now that the company is already signaling another step-up in 2027.
Valuation is part of the issue, too.
Alphabet’s price-to-earnings ratio sits around 29 as of this writing. That isn’t an alarming multiple for a business growing this fast. But it is also no longer the bargain it once was — particularly as depreciation from this spending cycle starts to flow through the income statement and pressure margins in the years ahead.
To be clear, none of this means I’m bearish. Alphabet’s diversified mix of search, YouTube, cloud computing, and a fast-growing subscriptions business — paired with a cash-rich balance sheet — still looks like one of the more balanced ways to invest in AI. The call here, therefore, isn’t to sell. But after a 130% run and a spending outlook that keeps stretching higher, shareholders sitting on big gains may want to think twice before adding more at current prices. Shares arguably look more like a hold than a buy now.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
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