Alphabet Inc. achieved its most profitable quarter in history, reporting $112 billion in profits, marking its inaugural 12-figure quarterly profit. However, 69% of this figure came from unrealized gains related to its investments in SpaceX and Anthropic, rather than from its core business operations. This reliance on such gains did not sit well with investors, leading to a nearly 7% drop in the company’s stock—the steepest decline since tariffs were implemented.
Despite strong growth in its cloud computing sector, which surged 82%, investors reacted negatively due to the company’s first-ever cash flow negative report, indicating that cash outflows exceeded inflows for the quarter. The management also projected a significant increase in capital expenditures for 2027, exacerbating investor concerns. Alphabet’s recent disclosures reveal over $800 billion in purchase commitments and other financial obligations, including $51 billion spent on supporting data centers for its partners.
In response to the earnings report, at least six financial firms lowered their price targets for Alphabet, while only Barclays increased its target. The negative sentiment affected not just Alphabet but also other tech giants like Microsoft, Amazon, and Nvidia, intensifying worries over emerging competition from new Chinese companies.
Although the financial outlook raised alarms, some analysts believe the market may have overreacted. Gil Luria of D.A. Davidson noted that while he reduced his target for Alphabet, he views its valuation as more reasonable at lower stock prices. He remains bullish on Google Cloud’s growth potential, estimating the company could earn $15 to $20 billion directly from new compute initiatives this year. However, he expresses caution regarding the intertwined relationships among major players in the AI sector.
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