--- title: "Alphabet welcomes a stunning opportunity on Wall Street: Google I/O 2026 is about to begin, and seven major fronts will determine the valuation quality of \"full-stack AI.\"" type: "News" locale: "en" url: "https://longbridge.com/en/news/286837319.md" description: "The Google I/O 2026 conference will be held on May 20, and Alphabet's AI showcase is seen as a great opportunity for Wall Street. Over the past year, Alphabet's stock price has risen by about 140%, reaching a historic high of $406.29 on May 18. Despite a significant increase in capital expenditures and market concerns about the investment return cycle, analysts remain optimistic about future revenues and maintain a \"buy\" rating" datetime: "2026-05-19T01:41:03.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/286837319.md) - [en](https://longbridge.com/en/news/286837319.md) - [zh-HK](https://longbridge.com/zh-HK/news/286837319.md) --- # Alphabet welcomes a stunning opportunity on Wall Street: Google I/O 2026 is about to begin, and seven major fronts will determine the valuation quality of "full-stack AI." According to Zhitong Finance APP, at 1 a.m. Beijing time on May 20, the Google I/O 2026 Developer Conference will officially open in California. Unlike previous years, this year's I/O is particularly special—18 months ago, this search giant was being questioned by the market about "whether it had missed the wave of generative AI," and now, Alphabet (GOOGL.US) has seen its stock price surge approximately 140% over the past year, reaching a 52-week historical high of $406.29 during intraday trading on May 18, the day before I/O opened. Behind the soaring stock price is Wall Street's substantial monetary reassessment of Alphabet's "full-stack AI" value. Lo Toney, founding managing partner of Plexo Capital and early investor in Anthropic, commented: "Google may be the most capable company to commercialize artificial intelligence at scale because it almost controls every layer of the entire tech stack. We have never really seen a company achieve such complete vertical integration from top to bottom to support the development of AI." ![286e6f0e9fe038a9c708883743041e4.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260519/1779152696603012.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) All these AI layouts are backed by astronomical levels of capital investment. Alphabet has raised its full-year capital expenditure guidance for 2026 to between $180 billion and $190 billion, nearly doubling from $91.45 billion in 2025, and expects capital expenditures to further increase significantly in 2027. Capital expenditures in the first quarter reached $35.7 billion, resulting in a year-on-year decline of 46.63% in free cash flow. Such massive expenditures have raised market concerns about the investment return cycle. However, considering that the $462 billion backlog provides extremely ample visibility for future revenue, along with the nearly 800% year-on-year growth in AI product revenue, most analysts remain optimistic. Bank of America analyst Justin Post reiterated a "buy" rating and a target price of $430 on the eve of I/O, believing that to drive further expansion of valuation multiples, "surprises at the AI level" may be needed. Berkshire Hathaway's current CEO Greg Abel increased the company's position in Alphabet by over 200% in his first quarter in office, seen as a heavyweight endorsement from a large institution. However, high stock prices also mean high expectations. What investors truly care about is no longer "what models Google has released," but whether AI can become a real growth engine for search, advertising, shopping, cloud computing, and enterprise software. Around this core proposition, the following seven key areas will become the focus of this year's I/O conference. **The Next Step for Gemini: The Ecological Logic Behind the Version Number Battle** The biggest suspense of the I/O conference is whether Google will release the next-generation flagship model Gemini 4.0. According to several media forecasts, Gemini 4.0 aims to achieve a leap in logical reasoning capabilities, fully competing with OpenAI's GPT-5.5 At the same time, a native multimodal version called "Gemini Omni" has been frequently mentioned. It is reported that it can directly generate and process multidimensional information without external video or audio tools. Internal testers have provided feedback that its video generation capability is extremely powerful, but the computational power consumption is also astonishing—some users claim that generating a short video consumed 86% of the daily quota for the AI Pro plan. However, analysts from institutions such as Citibank pointed out that according to the release rhythm of the Gemini model, which is approximately every 3 to 4 months (the most recent being Gemini 3.1 Pro in February 2026), it is more likely to see versions 3.2 or 3.5 on I/O, while the probability of Gemini 4.0 debuting is relatively low. Citibank maintains a "Buy" rating on Alphabet with a target price of $447, while emphasizing that for investors, "the model number itself is not a decisive factor"—what's more important is whether the Gemini ecosystem can continue to expand and enter more core services. The user growth data for Gemini supports this ecosystem expansion: as of the first quarter of 2026, the number of paid subscribers for Google's product suite has reached 350 million; the number of paid monthly active users for Gemini Enterprise has increased by 40% quarter-over-quarter; the monthly active users of the Gemini app in the U.S. grew by 127% year-over-year in April; and the number of tokens processed per minute for API calls has exceeded 16 billion, a 60% increase from the previous quarter. **AI Agents: From Chat Tools to "Office Colleagues"** If there is a theme that runs throughout this year's I/O, it must be "AI Agents." At the Google Cloud Next conference in April, Google officially shifted its corporate strategy focus to "agent-based AI," launching the Gemini Enterprise Agent Platform, which introduced features like "Memory Bank" and "Memory Profile," allowing AI agents to remember past interactions, and also launched "Agent Simulation" for pre-deployment testing. Google CEO Sundar Pichai revealed that as of April, 75% of Google's new code has been generated by AI and reviewed and approved by engineers. Notably, insiders have revealed that Google is building a 24/7 "personal agent" for Gemini, aiming to position Gemini as the operational layer within Google products, capable of understanding context and proactively executing tasks. In the field of agent programming, Gemini is directly competing with Anthropic's Claude Code and OpenAI's Codex, which has become one of the strongest proofs of AI's commercial value. Lo Toney commented on this: "The key is who can win the office assistant market. If the larger market develops towards AI agents and their coordination—reasoning infrastructure, multimodal workflows, enterprise search—then Google will face a tremendous opportunity, driving Alphabet's growth in the future." **Smart Shopping: From Search Engines to Transactional Closed Loops** The e-commerce sector may be the most disruptive highlight of this year's I/O. In January 2026, Google officially announced its entry into the "Agentic Commerce" era at the NRF Annual Retail Industry Conference, launching a new open standard called the "Universal Commerce Protocol" (UCP), aimed at becoming the "universal language" for collaboration between agents and systems at the consumer interface, businesses, and payment providers. This protocol was developed with the participation of major retailers such as Shopify, Target, Walmart, and Wayfair, and is supported by payment networks like Mastercard, American Express, and Visa. In February of this year, Google further embedded AI shopping features into its search engine and the Gemini chatbot, allowing users to directly purchase products within AI-driven answers, achieving a one-stop shopping experience of "ask and buy." Brands can also offer exclusive discounts to potential customers through the "Direct Offers" feature. Sameer Samat, President of Google's Android Ecosystem, illustrated this scenario: he asked Gemini to help him plan a barbecue, create a menu, open Instacart, add ingredients to his Safeway shopping cart, and notify him once the tasks were completed—"If you have to perform these operations multiple times a week, the time saved can be significant." For investors, the impact of this strategy extends far beyond Alphabet itself—Mizuho Securities pointed out that Google's development of more smart products could pressure e-commerce platforms like Booking Holdings, Expedia, DoorDash, Zillow, and Instacart, and expectations of this shift may already be reflected in the recent weakness of these stocks. **Monetizing AI Search: A Battle Over "Click-Through Rates"** Search advertising is Google's core cash cow, and the introduction of AI models is profoundly changing the underlying logic of this business. In the first quarter of 2026, Google's search advertising revenue reached $60.4 billion, a year-on-year increase of 19%, with query volume hitting a record high. Citigroup data shows that AI-driven advertising campaigns currently account for over 30% of search advertising spending; the AI Max tool ended its beta testing in April and is set to replace dynamic search ads in September, with its full suite of features already delivering higher conversion rates. However, the other side of the coin is equally concerning. Mizuho Securities noted a significant decline in external clicks brought about by AI model searches—estimating that 93% of searches ultimately do not generate external clicks, while the natural click-through rate for AI overview queries has also dropped by 15%. This means Google is transitioning from a "traffic distributor" to an "attention captor," and how to maintain advertisers' perceived value during this transition will be one of the most closely watched issues at I/O and the subsequent Google Marketing Live conference on May 21. Gene Munster, Managing Partner at Deepwater Asset Management, stated that he will focus on new advertising products within the AI model, how Google builds smart commerce, and what insights it provides for a more personalized AI experience **Google Cloud: 63% Growth Leads the Way, Backlog Orders Nearly Double** For investors, the most impactful I/O news may come from the cloud computing and infrastructure sector. Google Cloud has become Alphabet's strongest growth engine— in the first quarter of 2026, Google Cloud achieved revenue of $20.028 billion, a year-on-year increase of 63%, significantly exceeding the market expectation of about $18 billion. This growth rate not only surpasses the previous quarter's 48% increase but also greatly outpaces Microsoft Azure (about 30%) and AWS (28%). What excites Wall Street even more is that Google Cloud's backlog orders nearly doubled quarter-on-quarter in the first quarter, reaching $462 billion, with about half expected to recognize revenue in the next 24 months. Revenue from products built on generative AI grew nearly 800% year-on-year. Pichai pointed out in the earnings call that the number of billion-dollar deals signed in 2025 exceeded the total of the past three years, and existing customers' purchase volumes are more than 30% higher than their initial commitments. In terms of profit margins, Google Cloud's operating profit margin has reached 32.9%, an increase of 15.7 percentage points year-on-year, proving its ability to continue expanding profit margins while making large-scale investments. **AI Chips: TPU External Sales, Opening Up a New Revenue Stream** One of the most underrated variables at this year's I/O may be the external sales of Google's self-developed TPU chips. In the first quarter of this year, Google disclosed for the first time that it has delivered TPUs to a group of customers in the form of hardware configurations, and the related agreements have been reflected in the $462 billion backlog orders. CFO Arnaud Ashkenazi stated that a small portion of TPU sales revenue will begin to be recognized in the second half of 2026, with most occurring in 2027. Previously, at the Cloud Next conference in April, Google officially released the eighth generation of TPU, split into TPU 8t for training and TPU 8i for inference. The TPU 8t cluster can scale up to 9,600 chips, equipped with 2PB of shared high-bandwidth memory, with computing performance nearly tripling compared to the previous generation; the TPU 8i is equipped with 288GB HBM, achieving an 80% cost-performance improvement through a "memory wall-breaking" design. Lo Toney described TPU as one of the most underrated parts of Alphabet's vision, believing that Google's proprietary chips enable the company to build a tightly integrated AI infrastructure. Gene Munster estimated that the broader AI chip market is approximately $500 billion annually, meaning even moderate market share growth could have a significant impact on Alphabet. **Anthropic Relationship: $200 Billion "Double Hedge"** On the eve of I/O, Google's relationship with Anthropic became a market focus. On May 6, The Information reported that Anthropic has committed to paying Google Cloud about $200 billion over the next five years for cloud services and TPU computing power. This deal accounts for more than 40% of Google Cloud's $462 billion backlog orders The structure of this transaction is quite sophisticated: Google first invests $10 billion in cash into Anthropic (valued at $350 billion), with an additional $30 billion contingent upon achieving certain milestones; at the same time, Anthropic commits to $200 billion in cloud services and TPU procurement expenditures. Funds flow from Google to Anthropic and then back to Google through cloud services and TPU expenditures, creating a unique "funding cycle." Lo Toney commented that this relationship resembles a form of "hedging"—even if companies prefer to use Claude over Gemini, Google can still benefit from infrastructure demands: "If companies prefer to use Claude, Google still wins in terms of infrastructure because all these activities need to be hosted somewhere. Google still wins because they have TPUs." **Conclusion: From "Chaser" to "Definer"?** The significance of this year's Google I/O conference lies in the fact that it is not just a product launch event, but also a concentrated stress test of Alphabet's "full-stack AI" strategy. Wall Street has already granted Alphabet a generous valuation premium—its stock price has risen 140% over the year, with new 52-week highs being continuously refreshed—but all of this hinges on AI's ability to truly translate into sustained revenue growth in search, advertising, shopping, and cloud businesses. Munster succinctly encapsulated the essence of this moment: "Having a complete technology stack provides an advantage in innovation speed. When you develop using your own custom chips, the speed advantage becomes evident. When you have ample power resources, you can build data centers faster. 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