Although the stock of Google parent company Alphabet (GOOG) (GOOGL) has underperformed the S&P 500 index so far in 2026, investors should not overlook the fact that the stock has accumulated a gain of over 70% in the past 12 months. Against the backdrop of the S&P 500 rising only 1% during the same period, Alphabet’s recent moderate pullback appears entirely reasonable.
The core question currently concerning the market is: after such a substantial price increase, is it still too early to buy now? Compared to a year ago, investors now have to pay a significantly higher valuation for this tech giant. Is the current share price reasonable? Or should one wait for a better entry point?
To understand Wall Street’s optimism towards Alphabet over the past year, one only needs to look at the accelerating trajectory of its year-over-year revenue growth in recent quarters. The company’s revenue grew 12% year-over-year in the first quarter of 2025, subsequently increasing to 14% in the second quarter, reaching 16% in the third quarter, and further climbing to 18% in the fourth quarter.
What has excited investors even more is the explosive growth of its cloud computing business, Google Cloud. The quarterly revenue growth rate for this segment started at 28% in the first quarter, rose to 32% in the second quarter, hit 34% in the third quarter, and leaped to an astonishing 48% in the fourth quarter. Meanwhile, artificial intelligence is permeating all aspects of its business. The monthly active users for the AI application Gemini have exceeded 750 million. In the fourth quarter earnings report, CEO Sundar Pichai stated, “Usage of Search functions is at an all-time high, and artificial intelligence continues to drive business expansion.”
Considering the change in the growth trajectory from the first quarter to the fourth quarter of 2025, and the significant momentum in artificial intelligence at the end of the year, the company’s valuation being substantially higher than a year ago seems justifiable.
Interestingly, despite the stock’s surge of over 70% in the past 12 months, Alphabet’s current valuation is not particularly expensive. At the time of writing, its price-to-earnings ratio is approximately 29x—an attractive figure for a company that achieved 18% year-over-year revenue growth in the fourth quarter, with its core cloud computing business growing at 48%.
It’s worth noting that while the tech sector is generally viewed as high-risk, Alphabet’s business structure is already diversified. Out of the approximately $114 billion in total revenue for the fourth quarter, the advertising business contributed around $82 billion. However, Google Subscriptions, Platforms, and Devices contributed about $13.6 billion, and Google Cloud brought in approximately $17.7 billion.
The company’s balance sheet is impressive. By the end of 2025, total cash, cash equivalents, and marketable securities increased to nearly $127 billion, up from approximately $96 billion in 2024. In terms of net cash position, with long-term debt standing at only $47 billion, its financial structure is robust.
Discussions about large tech companies inevitably involve capital expenditures. Alphabet plans to invest $175 billion to $185 billion in capital expenditures in 2026, an amount nearly equivalent to its net operating cash flow of about $165 billion in 2025. This means the company plans to invest the vast majority, or even all, of its operating cash flow.
Such a massive spending plan undoubtedly increases the risk profile of the stock. However, if these investments yield long-term returns, the potential gains could also be substantial. Based on historical experience, Alphabet has always been prudent in capital allocation, and this large-scale investment will likely generate good returns. Nevertheless, given the sheer size of the capital expenditure and the fact that the tech industry is in a critical period of AI-driven transformation, investors may need to exercise extraordinary patience.
