Alphabet (GOOGL) vs. MSFT and AMZN: Can AI Investments and Google Cloud Growth Unlock a 26% Upside?

Is GOOGL a good stock to buy? We came across a bullish thesis on Alphabet Inc. on Astute Optics – US’s Substack. In this article, we will summarize the bulls’ thesis on GOOGL. Alphabet Inc.’s share was trading at $334.76 as of October 21st 2026. GOOGL’s trailing and forward P/E were 17.62 and 22.83 respectively according to Yahoo Finance.

This isn’t the first time we see a technology company pitched as a great investment. GOOGL shares gained 35.20% over the last 12 months. Comparable stocks like Amazon gained 20.50% during the same period. Strong gains can attract investors, but GOOGL’s recent pullback raises a different question: has the weakness created a buying opportunity, or is there more reason for caution?

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In July, we published an article about the 10 Best Quantum Computing Stocks to Buy and Hold Forever and GOOGL ranked #3 in that article. While GOOGL has edged slightly lower since then, the #1 stock in that list returned 41.18% over the same period. So, hedge funds were right about their #1 pick while GOOGL’s performance has been more subdued. This article explains why hedge funds were bullish on GOOGL. Before getting into our analysis, let’s take a look at the business and why some investors like the stock so much.

Alphabet Inc. (NASDAQ:GOOGL) provides internet services and technology platforms through Google Services, Google Cloud, and Other Bets. Its core business still centers on Google Search, YouTube, Android, Chrome, Maps, and advertising, but the real question for investors is whether artificial intelligence and cloud computing can become its next big growth drivers. Over the past year, revenue reached $445.9 billion, up 20.1%, and profitability improved as well, with margins climbing to healthy levels. The stock trades below the industry average on a headline basis, which on the surface makes it look cheaper than peers — though once one-time gains are stripped out, the valuation looks closer to the sector average. In short, the market isn’t just paying for what Alphabet Inc. earns today; it’s betting on years of AI and cloud-driven growth ahead.

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The bullish case is that Alphabet Inc. can use its massive existing user base to turn AI into real revenue across multiple businesses. Google Search keeps driving advertising income, while Google Cloud is emerging as a fast-growing enterprise business as companies adopt AI tools and Gemini-based products. Recent results back this up: quarterly revenue grew 24% year over year to $119.8 billion, and Google Cloud revenue jumped 82% to $24.8 billion as businesses ramped up spending on AI infrastructure. If that trend continues, bulls believe Alphabet Inc. can grow both from higher cloud demand and new ways to monetize AI across its platforms.

The company is backing this optimism with money: it raised its capital spending plans to a range of $195 billion to $205 billion to build out data centers and AI capacity. It can afford to, given a net cash position of $144.3 billion and $164.7 billion in operating cash flow last fiscal year. That financial cushion means Alphabet Inc. can keep funding its AI buildout without straining its balance sheet, which supports the bull case that this could be a multi-year growth story rather than a single strong quarter. You can check out whether Amazon or Alphabet makes the stronger AI cloud investment case after the spending bill here.

Wall Street largely shares that optimism. The average analyst price target of $422 implies roughly 26% upside from current levels, with estimates ranging widely depending on how much credit analysts give to AI and cloud growth. For that upside to materialize, though, Alphabet Inc. will need to keep converting its AI investments into actual earnings growth — if that monetization slows, these expectations could prove too optimistic.

The biggest risk is that all this spending doesn’t pay off fast enough. If AI is truly opening a new growth cycle, investors will expect the money being poured into infrastructure to eventually show up as stronger profits. Rising capital spending adds execution risk, and regulatory scrutiny over search and advertising practices could threaten some of Alphabet Inc.’s most profitable businesses. On top of that, newer AI-powered search tools are creating fresh uncertainty about the long-term strength of its core advertising model.

Another risk for the stock is businesses cutting advertising budgets when economic conditions weaken. Google can retain its users and search traffic while advertisers spend less to reach them. Alphabet generated more than 70% of its revenue from online advertising in 2025, leaving it heavily exposed to those spending decisions. Weaker consumer demand could prompt advertisers to reduce campaigns or lower their bids. That would pressure advertising revenue even without Google losing market share to AI competitors. Cloud growth may not fully offset a slowdown across its much larger advertising business. In our opinion, this dependence could pressure Alphabet’s price multiples if advertising weakens before newer businesses contribute enough profit.

Hedge fund positioning shows a mixed signal. As per our database, 275 hedge funds held Alphabet Inc. at the end of the second quarter, up from 265 the quarter before — a modest increase suggesting institutional investors remain generally confident in its AI and cloud story despite valuation and regulatory concerns. By comparison, Microsoft Corporation (NASDAQ:MSFT) was held by 273 hedge funds, down from 282, Amazon.com Inc. (NASDAQ:AMZN) was held by 369 hedge funds, up from 353, and Meta Platforms Inc. was held by 254 hedge funds, down from 262. Amazon.com Inc. clearly saw the strongest jump in institutional interest, while Alphabet Inc. gained ground compared with Microsoft Corporation and Meta Platforms Inc. (NASDAQ:META), pointing to continued confidence in large-cap tech names tied to AI.

Short interest data also paints a fairly calm picture. About 1.37% of Alphabet Inc.’s float is sold short, versus 0.82% for Microsoft Corporation, 0.88% for Amazon.com, Inc., and 1.52% for Meta Platforms, Inc. That’s higher than Microsoft Corporation and Amazon.com, Inc. but slightly below Meta Platforms, Inc., suggesting some investors are watching Alphabet Inc.’s spending, valuation, and regulatory risks more closely than those of Microsoft Corporation and Amazon.com, Inc. Even so, short interest remains low across all four companies, suggesting limited outright bearish conviction across the group.

Valuation Analysis

GOOGL’s forward P/E is 22.83x. Microsoft Corporation, Amazon.com, Inc., and Meta Platforms, Inc. trade at forward P/Es of 25.13x, 23.64x, and 22.08x, respectively. GOOGL’s own forward P/E was 28.01x on December 31, 2025, meaning its current valuation is approximately 18% lower. We believe the current valuation reflects significant investor concerns about rising AI spending, competition in search, and regulatory pressure. However, its modest discounts to Microsoft and Amazon and slight premium to Meta suggest the stock is reasonably priced rather than deeply undervalued. Alphabet Inc.’s trailing revenue increased 20.1% to $445.9 billion, while second-quarter revenue grew approximately 24%, although large investment gains inflated reported profits and should not be treated as recurring earnings growth. We believe Alphabet can justify 22.83 times forward earnings if its advertising and cloud businesses sustain double-digit earnings growth after rising infrastructure costs, allowing shareholder returns without requiring a higher P/E. If Alphabet turns AI demand into lasting profits and maintains sufficient cash flow after capital spending, the current valuation could offer an attractive entry point despite its execution and regulatory risks.

Previously, we covered a bullish thesis on Alphabet Inc. (GOOGL) by FluentInQuality in May 2025, which highlighted its digital ecosystem, AI foundation, Google Cloud growth, and undervaluation. GOOGL’s stock price has appreciated by approximately 111.2% since our coverage. We believe GOOGL could be a good long-term investment, as its reasonable valuation offers an attractive entry point if advertising and cloud growth sustain double-digit earnings growth after rising AI costs.

Alphabet Inc. is on our list of the 40 Most Popular Stocks Among Hedge Funds. While GOOGL could offer long-term upside if AI and cloud growth translate into lasting profits, we believe some AI stocks offer stronger long-term potential, with a high probability of delivering superior returns on a much shorter timeline. If you are looking for an AI stock that is more promising than GOOGL and that has 10,000% upside potential, check out our report about this cheapest AI stock.

Disclosure: None.