Alphabet (GOOG) (GOOGL) has substantially raised its AI infrastructure investment to the scale of hundreds of billions of dollars and has signed long-term supply agreements exceeding $800 billion, fully demonstrating its firm confidence in the demand for AI computing power. As the market leader in AI chips, Nvidia will undoubtedly become a primary beneficiary of this investment wave, with both its performance growth and stock price performance expected to receive strong support.
Alphabet released its second-quarter earnings on July 22 and announced an upward revision of its 2026 capital expenditure guidance to a range of $195 billion to $205 billion, a significant increase from the previously expected $180 billion to $190 billion, and far exceeding the $91.4 billion recorded in 2025.
This is positive news for Nvidia (NVDA).
Alphabet believes that AI demand will outstrip supply, implying that it will procure more Nvidia chips. Its Google Cloud revenue grew 82% year-over-year to $24.8 billion, and the cloud business backlog reached $514 billion in the second quarter. CEO Sundar Pichai noted that demand for AI models has exceeded supply capacity, prompting management to increase capital expenditures to rapidly convert the backlog into revenue. When Nvidia launched its next-generation Vera Rubin chip platform in January this year, Pichai stated that Alphabet would bring the platform’s capabilities to its customers. With Nvidia having already begun mass production of the Vera Rubin processor and planning to ship it this fall, Alphabet is likely to purchase more AI chip systems, thereby boosting Nvidia’s growth rate.
This semiconductor giant achieved 85% year-over-year revenue growth and 140% earnings per share growth in the first quarter of fiscal 2027, with current-quarter revenue guidance of $91 billion, indicating that the year-over-year growth rate will accelerate to 95%. With hyperscalers like Alphabet substantially increasing their spending, actual results may exceed expectations.
Analysts expect a considerable rebound in Nvidia’s stock price. Based on coverage from 64 analysts, the median 12-month price target for Nvidia is $300, implying a potential upside of approximately 45%. According to the Yahoo Finance consensus estimate, earnings per share for the current fiscal year are projected to grow 88% to $8.99, far surpassing the 24% growth rate for the S&P 500 index. If trading at a price-to-earnings ratio of 40 times, the stock price could reach $360, representing a potential upside of about 74% from current levels.
Alphabet’s massive AI investment has also drawn market attention. In the second quarter, the company recorded negative free cash flow for the first time since its initial public offering in 2004, with capital expenditures reaching $45 billion, double the amount from the same period last year. The company plans to further increase spending in the coming years, with capital expenditures set to grow significantly in 2027. The company has committed an additional $811 billion in spending, primarily directed toward AI.
By the end of the second quarter, Alphabet had entered into purchase commitments and other contractual obligations totaling $811 billion, a substantial increase from $332 billion at the end of the first quarter. These long-term supply agreements secure chip supply, data center construction, and energy services, with most agreements expected to be substantially fulfilled by 2030, while energy service contractual obligations extend to 2054. Therefore, investors can expect large-scale capital expenditures to continue at least through 2030.
This represents a massive bet on sustained demand for AI computing power. As of the end of June, its remaining performance obligations climbed to $520 billion, while the company faces a severe computing capacity shortage. It plans to increase capacity through third-party providers as a transitional measure, which may pressure short-term profit margins but long-term returns are expected to offset the costs. Additionally, Alphabet is increasing direct sales of its self-developed TPU systems, with inventory jumping from $2.4 billion in the previous quarter to $10 billion. Potential TPU sales are expected to become a significant driver of long-term supply agreements.
