Why We’re Not Fazed by Google’s Results — Or Its Capex Plans
We're raising our price target, but here's what we would want to see before members add more shares of Alphabet and other holdings
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As you’ve probably seen by now, last night Alphabet (GOOGL) delivered consensus-topping December-quarter results with overall revenue growing 18% to $113.8 billion, topping the $11.5 billion consensus. Growth accelerated at Google Cloud, profitability improved, and backlog grew 55% quarter over quarter to $240 billion.
Search delivered 17% year-over-year revenue growth, with strength across all major verticals — most notably retail. No surprise given the holiday shopping season. That performance also drove 14% growth in overall Google Services revenue, underscoring Search’s continued centrality to Alphabet’s financial model. Gemini metrics improved with the company sharing that it now has over 750 million monthly active users.
Margins were solid despite the level of investment the company has been making, and YouTube continues grow, surpassing $60 billion in annual revenue fueled by continued growth in advertising and subscriptions.
That combination led to multiple price target increases Thursday morning, with RBC taking its to $400 from $375 and the ever-bullish Wedbush lifting its to $370 from $360. We too will nudge our target to $365 from $350 as we see the trends driving the business improving further, and we look forward to the eventual step up in Google Cloud margins as the company shifts from investing in the business to harvesting the benefits of that spending.
On those developments, you would think GOOGL shares would be moving higher, and initially, they were in aftermarket trading last night. However, they have since reversed and are now down a few percentage points.
The culprit?
For some, it is the ginormous increase in capital spending to $175 billion-$185 billion, which, as we shared in our opening comments, is larger than the capital spending of the last three years combined. What is this money being spent on, you ask? Per the management team, it remains concentrated in technical infrastructure, with approximately 60% allocated to servers and 40% to data centers and networking. Knowing that breakdown explains why shares of Broadcom (AVGO) are outperforming on another red day in the market.
We are not surprised Google delivered a big increase considering enterprise adoption and usage of AI rising — something we can infer from comments collected this earnings season, and also in the backlog, RPOs, and other metrics from Google, Microsoft (MSFT) , Palantir (PLTR) , and ServiceNow (NOW) . But yes, it is bigger than we and many others expected. Still, let’s remember a topic we discussed back in December concerning 2026, earnings guidance, and depreciation.
The gist of that discussion centered around the One Big Beautiful Bill and how it permanently restored 100% bonus depreciation for qualified property acquired and put into service after January 2025. When it comes to data centers, that includes:
- Servers and racking
- Networking equipment (e.g., routers, switches)
- Electrical dedicated to processing/computing assets
- Dedicated cooling equipment and piping
- Certain renewable energy assets and improvements
While this will reduce Google’s taxable income and tax liability, it will be a tailwind for cash flow and net earnings after taxes. Some may say this has us putting on rose-colored glasses for Google’s big spending increase, but we’d counter and say Google is taking advantage of passed legislation to improve its position for what’s to come in the coming years.
The other factor weighing on GOOGL shares Thursday is the overarching sentiment in the market over the last several days, and odds are many are forgetting about the One Big Beautiful Bill.
When GOOGL shares were under significant pressure in the middle of last year, we added to our position in the Pro Portfolio in part because we said it would be a mistake to rule the company out and that it would figure out how to incorporate AI into Search. As we saw with its December-quarter results, its AI adoption is rising, and Search continues to grow double-digits.
At the same time, YouTube monetization continues to climb, and Google Cloud is scaling. And we almost left out the $24.6 billion in free cash flow generated in the December quarter, which left Google with $126.8 billion in cash. For those who would like a net cash figure, it stood at ~$80 billion at the end of 2025. Impressive.
At 4.15% of the Pro Portfolio’s assets, we’re not inclined to bulk up any further on Google, but we intend to remain shareholders to capture further upside in the shares as AI adoption and usage accelerate. Signs that we may need to revisit our new price target yet again include market share data for Search and YouTube, as well as further margin progress at Google Cloud and the company as a whole.
For folks that have smaller position sizes, we would point out that GOOGL shares are battling the 50-day moving average at $321.42 Thursday. At times like this, you would want to see a successful test of that support line, which means closing above it Friday.
Keeping in Mind the Market Mood and S&P 500
Let’s also take into account the market mood, that is, let’s say, making all of us frustrated and frazzled. Earlier Thursday, the S&P 500 moved below its 100-day moving average at 6796.49 and has since moved back above that level. We’ll want to watch this closely this afternoon and Friday. If it holds, as it did in late November, that could kick-start a rebound in the market.
That could be a time for folks underweight GOOGL to do some nibbling, with the same potentially for NOW, PLTR, Axon (AXON) , and some other holdings that have been beaten up rather heavily of late.
We have the U.S.-Iran talks Friday, and President Trump is scheduled to address the nation tonight at 7 PM ET. As of now, speculation it will be about the launch of Trump RX, but with Trump, that could only be part of what he discusses.
We also have quarterly results and guidance from Amazon (AMZN) after today's market close, the fourth largest holding in the S&P 500 at ~3.9%. With those known knowns and a potential unknown unknown, let’s hang tight near-term and look to see if this potential opportunity emerges.
At the time of publication, TheStreet Pro Portfolio was long GOOGL, NOW, PLTR, AXON, AVGO and AMZN.
