Alphabet Shares Surge as AI Bets Drive Advertising Growth and Offset Cloud Slowdown
Alphabet Inc. saw its shares jump over 5% in premarket trading Friday, after the tech giant reassured investors that its aggressive investments in artificial intelligence are paying off—boosting ad revenue and softening the impact of slower cloud growth.
“Alphabet is executing well in AI, proving many doubters wrong,” said Gerrit Smit, portfolio manager at Stonehage Fleming’s Global Best Ideas Equity Fund.
Google’s core ad business, which generates nearly 75% of its total revenue, posted an 8.5% increase in Q1 revenue to $66.89 billion. Though this marked a slight slowdown from the previous quarter’s 10.6% growth, it exceeded analysts' projections of 7.7%, according to LSEG data.
Earlier this month, Alphabet reaffirmed its plan to invest around $75 billion this year into expanding data center infrastructure. Rival Microsoft is on a similar path, projected to spend over $80 billion on its own upgrades. These figures represent nearly half of the $320 billion that analysts forecast Big Tech will pour into AI in 2025.
Still, growing U.S.-China trade tensions and economic concerns have led companies to re-evaluate their ad spending—sparking fears that tech firms might scale back AI infrastructure investments despite their competitive drive.
"The Mag7 may not shine like last year," noted Chris Beauchamp, chief market analyst at IG, "but Alphabet’s strong performance can renew investor confidence and boost risk appetite."
Google Cloud posted a 28% revenue gain to $12.26 billion, slightly missing expectations of $12.27 billion and down from the previous quarter’s 30.1% increase.
Alphabet’s results highlight the tech sector’s balancing act amid rising costs, regulatory hurdles, and global uncertainty. Its strategy reflects how Big Tech is navigating trade disputes, inflationary pressures, and intensifying AI competition—all while betting big on the future of generative AI.
Despite these headwinds, Morgan Stanley remains bullish: “GOOGL’s unmatched reach and ability to roll out GenAI-driven products position it as a long-term winner.” At least seven brokerages have since raised their price targets for Alphabet stock.
Legal challenges persist, however. The U.S. Department of Justice is pursuing antitrust actions that could force Google to divest key properties, including Chrome, to curb its dominance in search and prevent AI from reinforcing its market stronghold.
Year to date, Alphabet’s stock has dropped about 16%, compared to Microsoft’s ~8% and Meta’s ~9% declines. Alphabet’s 12-month forward price-to-earnings ratio is 17.33—below Microsoft’s 26.56 and Meta’s 20.49.
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