Buy Alphabet Stock After Strong Q4 Results or is it Too Soon?

Posting strong Q4 results yesterday evening, Alphabet GOOGL stock still dipped half a percentage point in Thursday’s trading session as investors pondered its massive spending plans.Some profit-taking may have also contributed to GOOGL falling as much as 8% before paring back early morning losses.The debate of whether it’s too soon to buy Alphabet shares following its strong Q4 report is intensified, considering GOOGL has rallied more than +70% in the last year with market-leading returns of over +200% in the last three years.Image Source: Zacks Investment Research Google Cloud Fuels Strong Q4 Results        Excluding total traffic acquisition costs (TAC), the portion of revenues shared with Google’s partners, Alphabet's Q4 sales came in at a quarterly peak of $97.23 billion, surpassing estimates by 2% and spiking 19% year over year. This was driven by a 48% surge in Google Cloud revenue at $17.66 billion, attributed to AI-driven demand. Search and YouTube ads helped significantly as well, driving Google Services revenue up 14% to $95.86 billion.On the bottom line, record Q4 net income of $34.46 billion or adjusted earnings of $2.82 per share beat expectations by nearly 10% and soared 31% from EPS of $2.15 a year ago. Additionally, it’s noteworthy that Alphabet’s Q4 operating cash flow hit a peak of $52.4 billion.Image Source: Zacks Investment Research Full-Year Results & AI-Centered OutlookRounding out fiscal 2025, Alphabet’s annual revenue surpassed $400 billion for the first time ($403B), increasing 15% YoY. Full-year adjusted EPS was up 34% to a record $10.13 from $8.04 per share in 2024.The tech giant emphasized AI-driven product momentum and cloud backlog strength but didn’t provide traditional revenue or earnings guidance, which aligns with its typical practice of avoiding detailed financial forecasts. Notably, Google Cloud backlog reached $240 billion at the end of Q4, a 55% sequential increase.  Surging Data Center SpendThe most detailed guidance Alphabet provided was its 2026 capital expenditures projections of $175-$185 billion, nearly double the $91-$93 billion spent in 2025.The immense record spending is focused on data centers in regard to building out AI compute capacity and cloud infrastructure to meet rising enterprise demand.  “Leaning fully into AI,” Alphabet stated that it expects infrastructure spending to remain elevated beyond 2026. Alphabet’s Reassuring ROICWhat could help offset Alphabet’s CapEx concerns is that the tech giant has an impressive return on invested capital (ROIC) percentage of 31.6%.Showing the keen ability to turn invested capital into profits, Alphabet’s ROIC is nicely above the often admirable level of 20% or higher. More reassuring, as shown in the chart below, Alphabet’s ROIC has been increasing, further suggesting the market’s worries about its increased CapEx may be overdone for now.It’s also important to note that Alphabet has the highest ROIC among the other Mag 7 hyperscalers, which includes cloud services peers Amazon AMZN and Microsoft MSFT, along with Meta Platforms META, considering its magnitude of AI training clusters for large language models (LLMs).Image Source: Zacks Investment Research Conclusion & Final ThoughtsAlphabet is positioning itself to dominate AI infrastructure and enterprise AI services, but its CapEx guidance has raised concerns about near-term profitability and potential cash flow pressure.  That said, Alphabet carries a strong balance sheet with over $98 billion in cash and equivalents and its stock still trades at a fairly reasonable 30X forward earnings multiple despite such an exhilarating rally in the last year.For now, Alphabet stock lands a Zack Rank #3 (Hold) and could still be rewarding to long-term investors, although there could be better buying opportunities ahead, even after its stellar Q4 results and record FY25. Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Alphabet Inc. (GOOGL): Free Stock Analysis Report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report Meta Platforms, Inc. (META): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks