Alphabet's (GOOG, GOOGL) Q2 results were mixed, but strong Google Cloud Platform growth reinforced the company's long-term position in artificial intelligence, RBC Capital Markets said in a report emailed Thursday.
Google Cloud revenue growth accelerated to 82% from 63% in the previous quarter, while backlog rose by $52 billion to $514 billion. YouTube also exceeded expectations, although Search was roughly "in line" and adjusted operating margins and earnings per share fell short, the report said.
The firm said higher-than-expected capital spending, negative free cash flow and the use of third-party computing capacity could weigh on margins and limit near-term share-price gains. Alphabet raised its 2026 capital expenditure forecast to between $190 billion and $205 billion and indicated spending would rise significantly in 2027, according to the report.
Still, the firm said Alphabet's combination of "data, computing and distribution" gives it advantages in AI that few competitors possess. Growth in cloud demand and expected expansion in Tensor Processing Unit sales could support stronger performance in 2027.
RBC maintained an outperform rating on Alphabet with a price target of $425.
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