Shares of Alphabet Inc. (NASDAQ:GOOGL) suffered their biggest one-day decline since May 2025 after the company surprised investors with another massive increase in artificial intelligence spending.
Wall Street focused on one number: an additional $15 billion in planned capital expenditures for 2026, pushing expected AI infrastructure spending to as much as $205 billion.
The move raised fresh concerns that the AI arms race is consuming cash faster than it can generate returns.
But while investors rushed for the exits, Bank of America Securities analyst Justin Post argued the selloff may have missed the bigger story.
The analyst reiterated his Buy rating and $430 price objective, implying a nearly 30% upside from where the stock traded on Thursday.
Post indicated that Alphabet’s latest results offered evidence that its AI investments are already generating measurable returns rather than simply inflating costs.
According to Post, there are four reasons why investors should look beyond the capex shock.
1. Cloud Growth Is Accelerating Faster Than Anyone Expected
The clearest proof, according to Post, came from Google Cloud.
Cloud revenue surged 82% year over year, far above Wall Street expectations of roughly 65%, while operating margins expanded to 35.6%.
“Cloud acceleration, margin strength and backlog growth suggest capex is driving immediate returns,” Post said.
For investors, that changes the debate. Higher spending becomes easier to justify when new capacity immediately translates into faster revenue growth.
2. The Backlog More Than Covers The Extra Spending
Alphabet increased its 2026 capital spending guidance by roughly $15 billion.
Yet Post argues the demand pipeline is growing much faster.
The company exited the quarter with a record $514 billion cloud backlog after adding roughly $50 billion in just one quarter. Management also disclosed that customers are consuming more than 50% above their contractual commitments while Google is winning new cloud customers at more than twice last year’s pace.
“More capacity = more sales,” he added.
3. AI Hasn’t Broken Search
One of Wall Street’s biggest fears entering earnings was that AI chatbots would begin cannibalizing Google’s search business.
Post says the opposite continues to happen.
“Google Search remains a net AI beneficiary, despite robust AI engagement growth on other platforms.”
The analyst believes improving AI models, new advertising formats, better commercial intent detection and eventual monetization of the Gemini application could create another leg of Search growth over time.
4. The Stock Isn’t Expensive Relative To Its Growth
Despite concerns over free cash flow, Post argues valuation has become increasingly attractive.
Following Thursday’s selloff, Alphabet traded at roughly 22 times BofA Securities’ 2027 earnings estimate — close to its long-term historical average even as the firm expects revenue growth to accelerate well above the pace seen during 2023–2025.
The analyst also notes that, after stripping out businesses such as Cloud, YouTube and Waymo, Alphabet’s core advertising and Google Play operations are effectively valued at about 13 times earnings — a discount to the broader S&P 500.
What Are Analysts Saying Now?
According to Benzinga Analyst Ratings, the consensus on Alphabet is a Buy with an average price target of $421.06. That implies roughly 32% upside from Thursday’s level, with individual targets running from a low of $350 to a Street-high $515.
The flow of updates on Thursday was unusually split, with roughly a dozen firms moving targets in both directions on the same set of numbers.
| Date | Firm | Price Target | Action | Rating |
|---|---|---|---|---|
| July 23, 2026 | Pivotal Research | $470 → $475 | Maintains | Buy |
| July 23, 2026 | BMO Capital | $455 → $465 | Maintains | Outperform |
| July 23, 2026 | Barclays | $405 → $425 | Maintains | Overweight |
| July 23, 2026 | Roth Capital | $435 → $440 | Maintains | Buy |
| July 23, 2026 | Truist Securities | $430 → $420 | Maintains | Buy |
| July 23, 2026 | Cantor Fitzgerald | $435 → $420 | Maintains | Overweight |
| July 23, 2026 | Wells Fargo | $418 → $411 | Maintains | Overweight |
| July 23, 2026 | Piper Sandler | $445 → $395 | Reiterates | Overweight |
| July 23, 2026 | DA Davidson | $375 → $350 | Maintains | Neutral |
Piper Sandler cut its target by $50 while BMO Capital raised its own by $10. DA Davidson took the Street low down to $350.
BofA Securities sits in between, holding $430 but trimming its target multiple to 27 times 2027 earnings from 28 times, a nod to the sector-wide anxiety about spending.
That leaves investors with two readings of the same quarter.
One says Alphabet is buying growth it cannot fund from cash flow. The other says the growth is already contracted and sitting in a $514 billion backlog.
The market is pricing the bill.
