Summary

• Google Cloud's revenue growth and margins have jumped sharply, outperforming both AWS and Azure. A double sequential backlog growth also suggests continued growth acceleration into FY2026.
• Google Search revenue has accelerated consistently over the past four consecutive quarters, driven by increasing AI monetization across its advertising business.
• Given a strong ROI history, elevated capex in FY2026, and FY2027 guidance, it should support cloud revenue growth, with demand still outpacing capacity.
• Strong AI monetization justifies a higher valuation premium, while the current valuation leaves room for further multiple expansion.
• A 25x non-GAAP P/E forward is slightly higher than its five-year average, indicating that robust earnings growth can support further upside without an AI bubble.

The Stock Underperformed the Nasdaq Index Doesn't Make Sense

Alphabet Inc. (GOOG, GOOG:CA, GOOGL) is only up 16% YTD, lagging the Nasdaq. Even with a massive growth acceleration in Google Cloud revenue in 1Q FY2026, the stock had

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