Alphabet's Massive AI Investment Push Signals More Gains Ahead for Nvidia

Tech giant Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has been investing aggressively in artificial intelligence (AI) infrastructure, and the company's latest quarterly report makes it clear that it will keep pumping more money into this technology.

Alphabet released second-quarter results on July 22 and announced that it is raising its 2026 capex guidance to a range of $195 billion to $205 billion. The company had earlier projected $180 billion to $190 billion in capex for 2026. The updated guidance points to a significant increase over Alphabet's 2025 capex of $91.4 billion.

This is great news for Nvidia (NASDAQ: NVDA). Let's see why.

Image source: Nvidia.

Alphabet sees AI demand exceeding supply, suggesting that it will procure more Nvidia chips

Alphabet's Google Cloud revenue surged 82% year over year to $24.8 billion. What's more, the company's cloud backlog stood at a whopping $514 billion in Q2. CEO Sundar Pichai noted that demand for its AI models is outpacing supply, prompting management to ramp up capex to quickly convert its massive backlog into revenue.

When Nvidia announced its next-generation Vera Rubin chip platform in January this year, Pichai pointed out that Alphabet will "bring the impressive capabilities of the Rubin platform to our customers." Importantly, Nvidia has started the volume production of Vera Rubin processors, and it plans to begin shipping them to customers this fall.

With Alphabet poised to significantly raise its spending this year, and possibly in the future as well, due to the huge backlog that it is sitting on, it is likely to purchase more of Nvidia's AI chip systems. So, there is a solid chance of an improvement in Nvidia's growth rate.

The semiconductor giant reported an 85% year-over-year increase in revenue in the first quarter of fiscal 2027 (which ended April 26), along with a 140% increase in earnings per share. Its guidance of $91 billion in revenue for the current quarter points toward a stronger year-over-year increase of 95%. However, it could do better than that as hyperscalers such as Alphabet significantly raise their spending to fulfill their AI-related cloud backlogs.

Analysts expect a solid bounce in Nvidia stock

Nvidia's 12-month median price target of $300, according to 64 analysts covering the stock, suggests a potential jump of 45% over the coming year. However, it could do better. After all, its earnings per share are projected to increase by 88% in the current fiscal year to $8.99, according to consensus estimates on Yahoo! Finance.

That's well above the 24% jump in the S&P 500 index's earnings. So, Nvidia should ideally trade at a significant premium to the index, which has a forward earnings multiple of 21.1. Assuming Nvidia trades at 40 times earnings at the end of the fiscal year due to its market-beating earnings growth, its stock price could reach $360.

That's a potential gain of 74% from current levels, which is why investors can consider buying Nvidia stock right away as the aggressive spending by the likes of Alphabet on AI infrastructure will create a solid tailwind for the AI chip specialist.

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