Alphabet’s Google Cloud is no longer just a traditional Internet-as-a-Service provider but is becoming an AI powerhouse. It has pushed the boundaries of AI-optimized compute via its in-house TPUs (Tensor Processing Units) and has made massive CapEx commitments towards AI. Remember, the recently announced ~$25 billion AI infrastructure investment across data centers? All this is making Wall Street very happy.
Big AI deals validate their strategy
Alphabet has closed high-profile AI infrastructure agreements. OpenAI is reportedly tapping Google Cloud’s TPU-based compute to train and run its models. Meanwhile, Meta signed a six-year, $10 billion deal with Google Cloud, not just for storage, but to power its AI workloads and large language models. With such deals in play, Alphabet is no longer just another vendor, but is proving to be a go-to compute partner for top AI firms.
Hedge Funds Are Betting, but Why?
Hedge funds are increasingly pouring into Alphabet, but their interest isn’t purely on its cloud business. Many see long-term value in its autonomous driving arm (Waymo). They also see consistent cash flow from its core ad businesses. TD Cowen’s reaffirmed a “Buy” rating for Alphabet, setting a price target of $335.
Looking at Alphabet’s earnings, its Cloud business generated $15.2 billion in revenue, marking a 34% year-over-year jump, driven primarily by a more than 200% surge in demand for AI-powered services. In addition, Alphabet disclosed a 46% quarter-over-quarter increase in its cloud backlog, showing its strong momentum and expanding pipeline for future growth.
Analysts Are Taking Note
Financial analysts now argue that Alphabet is undervalued given its cloud momentum. For example, after the Meta deal, some said Alphabet’s forward P/E multiple doesn’t fully reflect its potential as a next-gen AI infrastructure lead. CFO Anat Ashkenazi has echoed confidence, noting that Google Cloud demand already outstrips its available capacity.