Is Alphabet Stock a Buy as Google Cloud Revenue Soars?

As earnings season continues, we now have one more "Magnificent Seven" stock's fourth-quarter results to look at: Alphabet's (NASDAQ: GOOG)(NASDAQ: GOOGL). The highly anticipated report featured revenue and earnings per share that easily beat analysts' consensus forecasts, helped by surging growth in its cloud computing business, Google Cloud. In addition, the company confirmed that its AI (artificial intelligence) Gemini continued to gain traction and that AI is serving as a catalyst for growth in online search.

But the company also revealed that it plans to spend a massive amount of capital to support its continued growth.

Is the tech stock a buy as its Google Cloud business accelerates? Or does the company's plans for a huge investment year offset its upside potential from AI?

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Google Cloud accelerates

Alphabet reported fourth-quarter 2025 revenue of $113.8 billion, up 18% year over year. And earnings per share soared 31% year over year to $2.82. Analysts, on average, were expecting revenue and earnings per share of $111.4 billion and $2.63, respectively.

But the most important update from the report was probably Alphabet's impressive growth in Google Cloud. The important cloud computing business saw its revenue rise 48% year over year to $17.7 billion. That compares with 34% year-over-year Google Cloud growth in Q3.

Even more, Google Cloud operating income rose to $5.3 billion -- more than double the $2.1 billion the segment achieved in the year-ago quarter.

Of course, one of the great things about Alphabet's business is that its growth drivers remain diversified. Its core Google Services segment, which includes revenue from Google search, YouTube, Google subscriptions, Google devices, and more, saw revenue rise 14% year over year.

Still, it's worth noting that Alphabet's Google Cloud business is growing as a percent of overall operating income. Highlighting the fast-growing segment's growing importance to Alphabet's overall business, it accounted for about 15% of the quarter's operating income -- up from just 7% of operating income in the year-ago quarter.

Gemini usage expands

Not only is the AI boom driving a profitable expansion of Alphabet's cloud computing business, but the company is capitalizing on it with Gemini.

In the company's fourth-quarter update, CEO Sundar Pichai said Gemini models now process over 10 billion tokens per minute via direct API use -- meaning customer software calling Gemini models. And the Gemini App has grown to over 750 million monthly active users -- up 100 million from the company's last update on the app's user base in late October.

Expect massive spending

While Alphabet has been able to grow its AI operations profitably so far, some investors may be wondering whether this is sustainable as the company's spending continues to grow.

"We're seeing our AI investments and infrastructure drive revenue and growth across the board," said Pichai in the company's fourth-quarter update. "To meet customer demand and capitalize on the growing opportunities we have ahead of us, our 2026 [capital expenditures] investments are anticipated to be in the range of $175 to $185 billion."

To show just how staggering this figure is, it represents 97% year-over-year growth from the company's $91.45 billion in capital expenditures in 2025.

Overall, I believe these latest figures from Alphabet strengthen the long-term bull case for the stock. Yes, the company's big spending in 2026 may weigh on the company's margins over the next few years, but it should also strengthen Alphabet's competitive positioning and boost growth.

But investors should keep in mind the risks, including the possibility that these big investments may not pay off as well as management hopes. Additionally, there's some valuation risk, as the stock isn't necessarily cheap given its price-to-earnings ratio of about 33 as of this writing. A slowdown in the economy, for example, could weigh on advertising spend and spook investors, causing the valuation to rerate lower.

With that said, I think the current valuation is fair and that the stock looks like a buy for investors willing to embrace the risks of the company's big AI bet.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.