Analysts raise Alphabet targets after 82% Cloud surge

Alphabet ↘ 3.58% reported second-quarter 2026 revenue of $119.8 billion, up 24% year-over-year, as Google Cloud emerged as the company's fastest-growing segment with an 82% revenue surge that has drawn fresh analyst upgrades and underscored the tech giant's expanding role in enterprise AI.

Cloud Growth Drives Record Results

The results, reported in July and now fueling a new wave of analyst reassessments, showed Google Cloud revenue jumping to $24.8 billion in the quarter, with operating income more than tripling to $8.8 billion and margins expanding to 35.6% from 20.7% a year earlier. Cloud backlog reached $514 billion, increasing by more than $50 billion sequentially, driven by demand for enterprise AI offerings.benzinga+2

CEO Sundar Pichai said on the earnings call that nearly 90% of Fortune 100 companies now use Gemini Enterprise, with customers including Intel ↘ 1.02%, PepsiCo ↘ 0.77%, HSBC ↘ 1.32%, and Macy's ↘ 2.37% deploying the platform to build AI agents and automate workflows. The company's model APIs are processing approximately 22 billion tokens per minute, up from 16 billion the prior quarter.benzinga

Search and other advertising revenue grew 17% to $63.3 billion, while YouTube ads rose 13% to $11.1 billion. Consolidated operating income climbed 30% to $40.8 billion, lifting the operating margin to 34%.scanx

Analysts Raise Targets Amid AI Momentum

The strong fundamentals have prompted multiple analyst upgrades. Evercore ISI analyst Mark Mahaney raised his price target on Alphabet to $450 from $420 on September 17, maintaining an Outperform rating, citing the strengthening of Google's position as the leading search engine based on proprietary survey data. Tigress Financial Partners lifted its target to $485 from $415, maintaining a Strong Buy rating, pointing to AI-driven growth across Search, Cloud, and YouTube. A MarketWatch report noted that Mahaney's August survey found 78% of respondents chose Google as their primary search engine, a position that "has actually strengthened" over the past four quarters.marketwatch+2

CapEx Surge and Regulatory Headwinds

Alphabet raised its full-year 2026 capital expenditure guidance to $195–$205 billion, up from a prior range of $180–$190 billion, to meet surging AI infrastructure demand. The heavy spending drove free cash flow to negative $5.9 billion for the quarter, though the trailing 12-month figure remained at $53.3 billion.scanx

Meanwhile, a federal judge on September 2 ordered Google to overhaul its advertising technology practices and appoint an antitrust compliance monitor, while rejecting the Department of Justice's push to force a sale of its AdX exchange. Alphabet plans to appeal the liability ruling. Advertising revenue of $81.6 billion still accounted for roughly 68% of total revenue in the quarter, making the regulatory outcome a closely watched issue for investors.reuters+1