Alphabet Inc. (GOOGL) has stunned financial markets by announcing a colossal capital expenditure plan for 2026, targeting $175–$185 billion—far exceeding analyst expectations of around $120–$142 billion and roughly double its 2025 spend of $91.5 billion. This aggressive investment is primarily aimed at scaling artificial intelligence (AI) infrastructure.
The announcement followed a strong fourth-quarter earnings report for 2025. Alphabet reported total revenue of $113.8 billion, an 18% year-over-year increase that beat the Street's $111.5 billion estimate. Earnings per share came in at $2.82, surpassing the $2.64 consensus. The standout performer was Google Cloud, which saw revenue surge 48% to $17.7 billion, outpacing Microsoft Azure's 39% growth, and achieved an operating margin of 30%.
Analysts responded with a mix of optimism and caution. Piper Sandler raised its price target on Alphabet stock from $365 to $395, maintaining an Overweight rating, citing the company's "position of strength." J.P. Morgan analyst Doug Anmuth followed suit, lifting his target from $385 to $395 while also keeping an Overweight rating. He highlighted Google Cloud's backlog, which jumped 55% quarter-over-quarter to $240 billion, as justification for the spending, calling it "real demand backing up the investment thesis." Other firms, including BMO Capital and Stifel, also raised their targets.
However, the massive capex plan raises significant concerns about near-term financials. Morgan Stanley estimates that free cash flow per share could plummet 58% in 2026 and potentially up to 80% in 2027 as the spending takes effect. J.P. Morgan models 2026 free cash flow at $29 billion, a 61% drop from the previous year. Depreciation is also expected to spike by 73% in 2026.
The move is part of a broader "arms race" in AI spending across Big Tech. Meta has announced plans for $135 billion in capex this year, while Microsoft and Amazon face investor pressure to justify their own cloud and AI investments after recent disappointments. Alphabet's strategy is a high-stakes bet that building AI infrastructure now will secure long-term market dominance and generate durable revenue growth, particularly from its rapidly expanding cloud division.
