Alphabet stock surged over 7% after reporting blockbuster Q1 2026 earnings, with revenue of $109.9 billion and EPS of $5.11 crushing estimates. The rally, driven by a 22% revenue jump and Google Cloud crossing $20 billion, was tempered by a sharply raised AI capital expenditure target of $180-$190 billion, which analysts from UBS and Morgan Stanley warn creates a bear case.
Alphabet’s stock climbed to $371.80 in extended trading on April 29, 2026, after closing the regular session at $347.31. The company reported Q1 revenue of $109.9 billion, marking 22% year-over-year growth and its strongest quarter since 2022.
Earnings per share came in at $5.11, significantly above the $2.63 analyst consensus. Net income soared 81% to $62.58 billion, while Google Cloud operating income tripled to $6.6 billion with margins expanding to 32.9%.
Google Cloud’s backlog nearly doubled to $462 billion, which CFO Anat Ashkenazi stated will see just over half convert to revenue within 24 months. CEO Sundar Pichai commented on the earnings call, “Our AI investments and full-stack approach are driving performance across our business.”
Pichai also directly addressed supply constraints, stating, “We are compute constrained in the near term. Our cloud revenue would have been higher if we were able to meet the demand.” Alongside the results, Alphabet raised its quarterly dividend by 5% to $0.22 per share.
The company also raised its 2026 AI capital expenditure guidance to between $180 and $190 billion. Ashkenazi confirmed that 2027 spending will grow further due to “unprecedented internal and external demand for AI compute resources.”
This aggressive spending forms the core of the bear case outlined by analysts. UBS analyst Stephen Ju maintained a Neutral rating with a $375 price target, while Zacks rates GOOG a 3-Hold with a Value Score of D.
The concern shared by UBS and Morgan Stanley is that massive infrastructure spending takes years to generate revenue, with depreciation weighing on earnings. Some forecasts flag a possible 6.4% year-over-year EPS decline as costs impact near-term margins.
Competitors like ChatGPT and Perplexity are cited as long-term structural risks to Google Search, though Q1 data showed search revenue growing 19%. Analysts state the key metrics to watch are Cloud operating margin and the backlog trajectory for Alphabet stock’s future direction.
