Alphabet earnings need to justify its stock’s $2 trillion rally

By Ryan Vlastelica, Bloomberg

Alphabet Inc. is rapidly becoming seen as the leader in almost every major part of the artificial intelligence industry. Its earnings after the close Wednesday will help confirm whether that reputation is justified — and whether it’s enough to keep lifting shares.

It’s quite a turnaround for Google’s parent, which less than a year ago was thought to be falling behind in the AI race. Today it has a highly touted AI model, cutting-edge semiconductors, a fast growing cloud-computing business and a market position that’s so dominant that its new AI tool was enough to send video game stocks reeling. And that’s before you get to its nearly $300 billion a year digital advertising business.

All of this has pushed Alphabet’s share price to an all-time high and within striking distance of overtaking Nvidia Corp. as the largest stock in the world. At the same time, it has lifted Alphabet’s valuation to its highest level in 18 years. So naturally expectations are through the roof going into the print.

“Alphabet has been so strong on such a sustained basis that there is risk for disappointment and profit taking, even on strong earnings,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, which has about $11 billion in assets and owns the stock. “It could be that the whisper number investors want to see to keep the stock moving up is unattainable.”

Alphabet was the top performer among the Magnificent Seven tech giants last year, rising more than 65%. It has kept that title in 2026 with a 8.6% gain. Its market capitalization of $4.1 trillion is about 7% away from Nvidia’s $4.4 trillion after gaining more than $2 trillion in the past eight months.

Shares were up 0.7% early in Wednesday’s session.

The outperformance is relatively new for investors who once fretted that Alphabet had been surpassed in technological prowess by startups like OpenAI, which would erode Google’s huge market share in internet search. Much of the enthusiasm is coming from developments that have happened since Alphabet last reported earnings in October, meaning this is the first chance bulls have to really assess where the company stands.

“Compared to the past, Alphabet has a broader set of growth drivers, and cloud in particular has a chance to show tremendous growth over the next two or three years, which in my view will translate to strong free-cash-flow generation,” said Daniel Flax, a senior research analyst at Neuberger Berman.

In November, the company released the latest version of its Gemini AI model, which received rave reviews and reassured investors that it remains at the forefront of innovation. In addition, Alphabet’s tensor processing unit semiconductors are considered a potentially massive business, and their use in Google Cloud is seen as a major selling point to the unit.

“AI search is becoming more valuable to users, which I think will transfer to growth,” Flax said. “The broader TPU and cloud strategy continues to add to the company’s differentiation. All this sets Alphabet up well over the next couple of years, in terms of having avenues for stock growth.”

And those are just some of Alphabet’s thriving businesses. In addition, its YouTube unit is the biggest player in streaming video, and its Waymo autonomous driving unit just raised $16 billion at a $126 billion valuation, almost triple the $45 billion valuation it had in October 2024.

Alphabet’s earnings are expected to show revenue growth of 17%, according to data compiled by Bloomberg. Earnings per share are expected to be up 23%.

The question, of course, is whether that growth is enough to justify Alphabet’s lofty valuation, especially considering 2026 capital expenditures are projected to rise by about 28% to $117 billion. Shares trade at around 28 times estimated earnings, their highest since early 2008, and notably above their 10-year average of about 21.

Last week, Microsoft Corp. reported slowing growth in its cloud-computing business, contributing to a historic selloff in the stock amid renewed questions about heavy spending on AI. At the same time, Meta Platforms Inc. rallied despite soaring spending of its own, as its positive revenue forecast was seen as justifying the expenditures.

“There’s reason to believe Alphabet could look more like Meta than Microsoft,” said Ingalls & Snyder’s Ghriskey. “Meta did such a good job pointing to growth even with all that spending, and I think that plays into the Alphabet story. Investors have a lot of confidence that Alphabet is going to get a payoff as new products emerge and growth remains high. If that’s the case, investors will be able to look past any aggressive spending.”

Tech Chart of the Day

A new AI automation tool from Anthropic PBC sparked a $285 billion rout in stocks across the software, financial services and asset management sectors on Tuesday as investors raced to dump shares with even the slightest exposure.

Top Tech Stories

• Nvidia Corp. is nearing a deal to invest $20 billion in OpenAI as part of its latest funding round, according to people familiar with the matter, marking the chipmaker’s single biggest investment in the ChatGPT developer.
• Advanced Micro Devices Inc. shares tumbled after the chipmaker’s sales forecast underwhelmed investors, a sign that it’s not making the AI inroads that some on Wall Street anticipated.
• Anthropic is working on a deal to let some employees sell shares in the company at a valuation of at least $350 billion, according to a person familiar with the matter, a plan that is coming together at the same time as a funding round that could bring in more than $20 billion.
• Netflix Inc. and Warner Bros. Discovery Inc. faced a skeptical Senate panel Tuesday as their executives defended their $82.7 billion media merger against lawmakers’ concerns about the proposed tie-up and its impact on streaming consumers and Hollywood workers.
• Nintendo Co.’s shares slid their most in 18 months after the company reported disappointing earnings, revealing a big hit to margins while concerns grow about the impact of soaring memory chip prices in 2026.

Earnings Due Wednesday

• Earnings Premarket:
  • Azenta Inc. (AZTA US)
  • CDW Corp. (CDW US)
  • Cognizant Technology Solutions (CTSH US)
  • Vishay Intertechnology Inc. (VSH US)
• Earnings Postmarket:
  • Cerence Inc. (CRNC US)
  • Digi International Inc. (DGII US)
  • A10 Networks Inc. (ATEN US)
  • Alphabet Inc. (GOOGL US)
  • Clearfield Inc. (CLFD US)
  • Coherent Corp. (COHR US)
  • EPlus Inc. (PLUS US)
  • FormFactor Inc. (FORM US)
  • Kimball Electronics Inc. (KE US)
  • Lantronix Inc. (LTRX US)
  • Netgear Inc. (NTGR US)
  • PC Connection Inc. (CNXN US)
  • PTC Inc. (PTC US)
  • Qualcomm Inc. (QCOM US)
  • SiTime Corp. (SITM US)
  • TTM Technologies Inc. (TTMI US)
  • Tenable Holdings Inc. (TENB US)
  • News Corp. (NWSA US)
  • QuinStreet Inc. (QNST US)
  • Warner Music Group Corp. (WMG US)

–With assistance from Subrat Patnaik and David Watkins.

(Updates to market open.)

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