Why Alphabet Stock Popped Today

Key Points

• Citi just hiked its Alphabet price target by 24%.

• Alphabet is plowing essentially all its free-cash-flow growth into new capex spending on AI.

• 10 stocks we like better than Alphabet ›

Ring the bells and blow the trumpets: Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) stock just hit $3 trillion in market capitalization for the first time ever.

And you can thank Citigroup for the boost.

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Image source: Getty Images.

What Citi says about Google

Alphabet stock jumped 3% through 11:10 a.m. ET this morning, and the major catalyst behind the move was this: As TheFly.com reports today, Citi raised its price target on Alphabet stock to $280 a share, a 24% increase that implies the stock could rise another 12% over the next 12 months.

And why did Citi do this? Because artificial intelligence (AI), that's why.

Citing "greater regulatory clarity," says Citi, Alphabet says it will release new products more quickly than in the past, building on its dominant position in internet advertising. In particular, Citi's looking to see Alphabet roll out its Gemini AI product across all the company's advertising and cloud businesses, capitalizing on its investments in AI.

Is Alphabet stock a buy?

Investors had better hope Citi is right, because the investments that Alphabet has made in artificial investments have been truly massive -- and very expensive.

According to data from S&P Global Market Intelligence, since OpenAI released ChatGPT in late 2022, Alphabet's capital spending (on chips and server farms and other AI infrastructure, primarily) has more than doubled. Over the last 12 months, Alphabet's spent a staggering $67 billion on capital expenditures, such that today, roughly half the company's operating cash flow is immediately consumed by capex.

Result: Free cash flow at the company grew just 11% total over the last three years.

Right now, Alphabet may be a leading AI company. I won't argue that. But it's hard to call Alphabet a growth stock anymore, and until that changes, I'm not at all certain Alphabet stock is a buy.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.