By Adam Levine
Google parent-company Alphabet reported solid fourth-quarter earnings results Wednesday afternoon. Investors were likely more interested in the company's forecast for expanded 2026 capital expenditure spending, which the company now sees at $175 to $185 billion, well in excess of expectations of around $115 billion.
Shares were volatile in late trading, currently down 1%.
Those capital expenditures are intended to satisfy what seems to be a currently insatiable demand for AI cloud computing. Google Cloud saw revenue of $17.7 billion, up 48% year-over-year and well ahead of Wall Street consensus. Moreover, unlike some other cloud providers, Google is seeing its operating margins thicken at 30.1% in the fourth quarter, up from 17.5% last year and expectations of 22.7%.
Cloud backlog grew 55% since the last quarter, now at $240 billion. That news sent shares higher; after initially falling on the earnings report, the stock is up 1.6% in late trading.
Earnings-per-share for the quarter were $2.82, above Wall Street's consensus estimate of $2.63, rising from $2.15 last year. Revenue for the quarter reached $113.8 billion, ahead of expectations for $111.3 billion, and up 18% on the year.
The fears that AI search has been impacting Google's ad sales may be quelled by the earnings report. Fourth-quarter Search ad revenue was up 17% from last year, easily beating the Wall Street consensus. But YouTube ad sales underperformed, only up 9%. All together, Alphabet had a strong quarter for advertising.
This is breaking news. Read a preview of Alphabet's earnings below and check back for more analysis soon.
A year ago, Alphabet's core property, Google Search, looked like it was in trouble. Despite a decade of well-funded research on artificial intelligence, Google was still surprised by the capabilities of ChatGPT when it debuted in November 2022.
Google struggled to match AI models coming out of start-ups OpenAI and Anthropic, and web search was changing. Moreover, the company faced regulatory pressures in the U.S. and around the world.
But Google is in a much stronger position as Alphabet prepares to report its fourth quarter Wednesday afternoon.
AI overviews, an AI summary of search results at the top of traditional Google search, have proven to be very effective in maintaining the near 90% market share Google has in search. The Gemini 3 AI models, released in November, finally put Google on par with OpenAI and Anthropic. Google also developed some momentum for its homegrown AI chips, the TPU, with a large Anthropic partnership. And one of Google's antitrust trials, U.S. v. Google, concluded with punishments less onerous than feared.
The doom and gloom of early 2025 has faded. In the past six months, Alphabet stock is up 81% and sentiment has shifted.
On average, Wall Street analysts are expecting earnings-per-share of $2.63, up from $2.15 last year. Revenue is seen at $111.3 billion, rising by 15%.
About three-quarters of Alphabet's sales come from advertising, and it is always the foundation of companywide performance. Ad revenue is expected to grow by 13%, led by search. But in the absence of real issues there, all eyes will be on the sales and expense growth at Google Cloud.
The part of the AI investment boom that is already paying off is at cloud providers such as Google, which build AI data centers and rent out the servers. The first side of this is the massive investments Google is making into expanding capacity to meet demand. Google spent about $90 billion in 2025 capital expenditures and investors are likely to hear Google's first estimate for 2026 capex during the fourth-quarter earnings call. Analysts expect about $116 billion.
Microsoft already spent $72 billion in capex in the first half of its fiscal year, and Meta, which has no cloud unit, last week projected $115 billion to $135 billion in 2026 capex.
But the other side of all that expense is growing revenue and operating margins at Google Cloud. Sales are expected at $16.2 billion, up 35% year-over-year, with an operating margin of 22.7%, up from 17.5%.
Alphabet still faces the worst competitive and regulatory environment it has seen, but at least for now it keeps chugging along.
Write to Adam Levine at adam.levine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 04, 2026 16:41 ET (21:41 GMT)
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