Alphabet shares surged nearly 10% on Thursday, hitting a record high after the company reported stronger-than-expected results for the first quarter of fiscal 2026. Total revenue climbed 22% year-on-year to $109.9 billion, beating market expectations of $107.2 billion.

Google Cloud was a standout performer, with quarterly revenue exceeding $20 billion for the first time, marking a 63.4% increase from $12.26 billion a year earlier. Operating profit in the segment jumped from $2.18 billion to $6.6 billion, while operating margins expanded significantly from 17.8% to 32.9%.

The surge in cloud growth was driven largely by strong enterprise demand for generative AI infrastructure and customized TPU chips. More notably, Alphabet revealed that its cloud backlog nearly doubled from around $240 billion in the previous quarter to $462 billion, reflecting strong momentum from Gemini integration. This suggests its AI solutions are gaining significant traction in long-term enterprise markets, with strong customer retention and demand visibility.

During the earnings call, Alphabet announced it is raising its 2026 capital expenditure guidance to between $180 billion and $190 billion, citing unprecedented demand for AI capabilities. The company also expects capital spending to rise further in 2027, viewing the investment as essential to support future growth.

Alphabet did not repurchase any shares in the first quarter—the first pause in buybacks since the pandemic began. Management said the decision reflects extraordinary internal and external demand for AI computing resources.

Analysts also highlighted Alphabet’s push into AI-driven commerce. The company emphasized its “AI Answers” and “AI Mode” initiatives, which aim to streamline the customer journey from discovery to purchase. AI Mode allows users to view product recommendations, compare options, and complete purchases seamlessly—a strategy that directly challenges Amazon’s core e-commerce business. If successful, this could accelerate Alphabet’s revenue growth through stronger advertising performance.

Market Analysis:

For the second consecutive quarter, both search revenue and cloud backlog exceeded expectations, indicating that Alphabet is accelerating monetization in the generative AI cycle. The company signaled that 2027 will remain a heavy investment year. As Alphabet typically does not provide long-term guidance, markets may need several quarters to fully price in its future capital expenditure trajectory.