Google Cloud Is Turning AI Demand Into Profits. Should You Buy the Stock?
Key Points
Google Cloud revenue increased 48% year over year in the most recent quarter, while operating income reached $5.3 billion.
The company will have to spend aggressively to keep up with demand.
Alphabet stock is trading at 29 times 2026 earnings estimates.
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Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) stock made a monster comeback in 2025, rocketing 107% after the sharp sell-off in April, and the real growth story is happening in Google Cloud. Enterprise demand for artificial intelligence (AI) tools is off the charts, and Alphabet is not only reporting strong revenue growth, but also turning this demand into soaring profits.
Google Cloud's operating income jumped 154% year over year in the fourth quarter, contributing to the company's double-digit earnings growth over the past year. Here's what investors should know before deciding whether to buy Google stock now.
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Google Cloud is turning into a real growth catalyst for the company, particularly on the bottom line. Cloud revenue increased by 48% year over year -- a noticeable acceleration over the previous quarter's 34% increase -- with operating income reaching $5.3 billion in the fourth quarter.
However, Google Cloud still contributes just 15% of Alphabet's total operating profit. This is still primarily a digital advertising business, with that making up 72% of the company's fourth-quarter revenue.
Investors should also be prepared for a dip in the share price. Wall Street doesn't like anything that causes uncertainty to near-term earnings visibility. Alphabet is planning to double capital spending in 2026, and this could pressure the share price in the near term.
Still, Alphabet is directing more investment into its AI infrastructure. AI is the future, and the companies that own hard assets -- data centers and chips -- will ultimately capture much of the profit from this technology, as Alphabet is already demonstrating.
Google stock is not as cheap as it was a year ago, but investors shouldn't be afraid to buy it at these higher share prices. The stock is trading at 28 times 2026 earnings estimates -- still reasonable for a company of this quality.
Should you buy stock in Alphabet right now?
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John Ballard 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.
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