Alphabet Inc. (NASDAQ:GOOGL) has outpaced the market by more than 26 percentage points during the last 1 year, and a massive gap between its operating cash flow and free cash flow reflects on how much this tech giant is betting on accelerated AI spending. Investors are less concerned about the quality of Alphabet’s business, and more about whether its current valuation reflects future projections. Despite such risks, it offers topline growth in mid-20s, along with solid margins and outsized returns on capital.
The balance sheet for Alphabet also remains healthy, and the stock currently trades at a reasonable forward multiple. It has gained 11.2% during the last six months, compared to 15.09% for the S&P 500 ETF (SPY). Moreover, Alphabet ranked #2 in our recent list of 10 Best Cloud Computing Stocks to Buy According to Billionaires. But which stock ranked higher?
Photo by Kai Wenzel on Unsplash
Is it Now a Cloud Growth Story?
Alphabet was trading at $352.72 on October 12 closing. The stock has jumped 12.69% in 2026, but has fared higher over the past 52 weeks with a 44% gain. This compares with 17.4% for the S&P 500 during the stated period. Hence, much of the rally came during the last quarter of calendar 2025, and the pace has cooled this year.
A rapid growth in enterprise demand for AI capabilities has resulted in massive traction for Alphabet’s cloud business. During the recently reported quarter, the Google Cloud revenue clocked in at $24.8 billion, representing an 82% growth compared to the corresponding period last year. It also yielded close to 36% operating margin.
The segment is seeing multi-year commitments from government and commercial customers, as its contracted backlog has grown to $514 billion. It also now accounts for a higher chunk of Alphabet’s total revenue, contributing approximately 20.7% of Alphabet’s total revenue in Q2 2026, compared with 14.1% a year earlier. Alphabet recently made it to our list of 10 Best Growth Stocks to Buy Now According to Billionaires, ranked #2. Which other stocks made it to that list?
Balance Sheet Strength Yields Substantial Cushion
With a $4.12 trillion market capitalization, operational performance looks strong. On a trailing-twelve-month basis, total revenue came in at $445.87 billion. This includes a 24.2% year-over-year jump in its consolidated topline, which stood at $119.8 billion for the second quarter of fiscal 2026. Alphabet generated $173.16 billion EBITDA, and with 34.03% operating margin one can say that the underlying growth is not coming at the expense of efficiency.
The balance sheet is one of the strong points for Alphabet, as the company sits comfortably with debt-to-equity ratio of 18.9%. A large debt balance of $120.8 billion is easily overpowered by its healthy holdings of around $242.5 billion. Alphabet’s substantial net financial assets provide a meaningful cushion, although a portion consists of equity investments exposed to market fluctuations.
Institutional Sentiment
Based on data tracked across 1,000+ hedge funds by Insider Monkey, institutional sentiment toward the company remains strong. According to 13F filing data, number of smart-money managers with long-term exposure in the stock has been going up. A total of 275 hedge funds held positions by the end of Q2 2026, compared to 265 in Q1 2026.
BlackRock is the largest institutional stakeholder, as per Yahoo Finance database, holding 460.97 million shares as of June 30. This amounts to 7.86% of outstanding shares. Other notable institutional investors include Vanguard Capital Management and FMR, holding 6.53% and 4.27% of outstanding shares respectively.
Way Forward
Valuation metrics appear attractive at first glance. The stock trades at a trailing price-to-earnings multiple of 17.62x, which looks compelling for a company with this growth profile. However, the forward P/E ratio is higher at 22.83x. This does not necessarily imply a decline in underlying earnings, as trailing profits benefited from substantial non-recurring investment gains. But Alphabet’s earnings multiple tells only part of the story. Is Microsoft actually the cheaper AI cloud stock once capital spending is factored in?
Overall, Alphabet looks reasonably valued rather than cheap on a forward basis. It’s risk-reward profile remains cautiously favorable, provided cloud growth can justify its elevated AI spending.
READ NEXT: Salesforce (CRM) Trails the Market in 2026: What Could Fuel a Re-Rating? and Adobe (ADBE): Are Strong Fundamentals Enough to Overcome AI Fears?.
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