Top Analyst Chimes In on Alphabet Stock After Post-Earnings Slip

Alphabet (NASDAQ:GOOGL) delivered another strong quarter, but investors still found reason for caution. The tech giant beat expectations by a comfortable margin, highlighted robust demand for its AI offerings, and showed that its cloud business continues to gain momentum. Still, shares fell nearly 2% in Wednesday's after-hours session as the market focused on management's decision to lift its capital spending outlook once again, raising concerns that the company's massive AI investments could take longer than expected to generate meaningful returns.

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Drilling into the results, revenue climbed 24.2% year over year to $119.8 billion, topping consensus by ~$2.8 billion. GAAP earnings reached $9.11 per share, up from $2.31 a year earlier – but that jump was driven largely by a one-time $98 billion net gain on equity securities (including Alphabet's stakes in companies like Anthropic and SpaceX), rather than core operating performance. Meanwhile, operating income rose a still-healthy 30.4% to $40.8 billion, with operating margin expanding to 34% from 32.4% a year ago. Adjusted EPS came in at $2.85, below the $2.91 analysts had expected. Alphabet also raised its full-year capital expenditure forecast to $195 billion–$205 billion, reflecting management's plans to continue investing heavily in AI infrastructure.

Stifel analyst Erik Rasmussen, who ranks among the top 2% of Wall Street analysts, believes the earnings report offered a much more encouraging message than the market reaction suggests. While many investors focused on the higher spending plans, Rasmussen argues that the more meaningful takeaway is that customer demand remains well above Alphabet's available computing capacity.

The analyst described management's comments about turning to third-party data center providers as "a positive read-through" for the broader infrastructure sector, adding that they reinforce the thesis that "hyperscale demand is constrained by power and deployment timelines rather than customer demand." Rasmussen believes this distinction matters, as it suggests Alphabet is spending more to satisfy customers rather than trying to stimulate demand.

The analyst also views management's willingness to lease outside capacity as an encouraging development. He believes Alphabet is "willing to rent capacity to avoid lost revenue opportunities," allowing the company to support customer demand while its own data center expansion continues. Rasmussen also pointed to management's comments that cloud demand could have been even stronger with additional capacity available, reinforcing his view that infrastructure remains the limiting factor rather than customer interest.

That outlook also supports Rasmussen's positive view of the data center industry. He believes capacity constraints "will likely persist for some time," leaving Alphabet likely to "rely heavily on third-party capacity to fulfill accelerated customer demand." As a result, Rasmussen sees Alphabet's latest commentary as supportive of companies such as Digital Realty and Equinix, citing "a favorable environment of sustained leasing activity, higher utilization, and continued demand" while hyperscalers continue expanding their AI infrastructure.

Rasmussen doesn't officially cover Alphabet or assign a rating to the stock, but his comments leave little doubt about where he stands. More broadly, Wall Street remains overwhelmingly optimistic. GOOGL earns a Strong Buy consensus rating based on 29 Buys and 5 Holds, while the average price target of $437.79 implies ~28% upside over the next 12 months. (See GOOGL stock forecast)