It's been an interesting start to the year for software stocks. Throughout January, several high-growth software developers -- namely, major cloud service providers -- continued to exhibit strong momentum on the heels of ongoing demand for artificial intelligence (AI). However, these dynamics have swiftly changed over the last couple of weeks. The irony is that the culprit behind the sell-off in software stocks is... AI. So far in 2026, shares of Amazon (NASDAQ: AMZN) have slumped 11%. In the month of Feb ...

Key Takeaways Alphabet's Google Cloud revenues jumped 35.8% in 2025, with backlog surging 55% to $240 billion. GOOGL is riding strong AI demand, with Gen AI product revenue up nearly 400% in Q4 2025. Alphabet plans $175B-$185B in 2026 capex as it battles Amazon and Microsoft in cloud. Alphabet (GOOGL) is riding on a strong Google Cloud prospect, which accounts for 14.6% of GOOGL’s 2025 revenues. Google Cloud revenues jumped 35.8% over 2025’s reported figure to $58.71 billion. The top line benefited from gro ...

Group 1 - The core battle for AI entry and ecosystem among domestic tech giants in China has intensified, with Tencent leading by investing 10 billion to capture user attention, while ByteDance and Alibaba are also aggressively targeting C-end users [1] - Warren Buffett's regret over missing early investment opportunities in Google highlights the importance of ecosystem in tech investments, as he recently sold Apple shares to buy Google stock, marking a significant strategic shift for Berkshire Hathaway [2][4] - Buffett's investment logic remains unchanged, focusing on businesses with strong ecosystems, as seen in his previous heavy investment in Apple's iOS ecosystem and now in Google's AI ecosystem [7][14] Group 2 - Google's transition from a single product leader to establishing a comprehensive AI ecosystem has attracted Buffett's investment, indicating a shift in competitive dynamics in the AI era [8][25] - The competition in the AI landscape has evolved from individual capabilities to a comprehensive ecosystem battle, with Google's success demonstrating the viability of a full-stack ecosystem combining chips, models, cloud, and applications [13][14] - The integration of AI into Google's advertising and cloud services has driven growth, with cloud revenue increasing by 33.5% year-over-year to reach $15.16 billion in Q3 2025, showcasing the effectiveness of AI in enhancing user engagement and operational efficiency [23][24] Group 3 - Other tech giants like Amazon, Meta, and Microsoft face challenges in the AI race, with Amazon's AWS losing market share due to late entry into generative AI, and Meta struggling with model capabilities and lack of cloud services [27][29][30] - OpenAI and Anthropic are also under pressure to establish their ecosystems, relying on partnerships for cloud and hardware support, while Google has built a comprehensive AI ecosystem from the ground up [34][32]

Core Insights - The competition for AI leadership among major cloud providers is intensifying, with Microsoft, Alphabet, and Amazon leading in different segments of the AI stack [1] Microsoft (Azure) - In Q2 FY2026, Microsoft's Cloud revenue rose 26% to US$51.5 billion, driven by a 39% increase in Azure and other cloud revenue [2] - Microsoft's capital expenditure (CAPEX) surged 66% YoY to US$37.5 billion, raising concerns about the sustainability of growth [2] - The backlog for Azure reached US$625 billion, up 110% YoY, indicating strong demand for Azure services [3] - OpenAI contributed 45% to Microsoft's backlog, while the non-OpenAI segment grew 28% YoY, reflecting broad-based demand [3] - Microsoft is developing custom AI accelerators and integrating AI into its product suites, similar to Alphabet's strategy [3] - The company has extended the useful life of older GPUs through advanced software, akin to NVIDIA's CUDA approach [4] Alphabet (Google Cloud Platform - GCP) - In Q4 2025, Alphabet's Cloud revenue increased 48% YoY to US$17.7 billion, with GCP growing at an even higher rate [5] - Alphabet's CAPEX in Q4 2025 rose 95% YoY to US$27.9 billion, with total CAPEX for 2025 reaching US$91.4 billion [5] - GCP's backlog grew 55% sequentially to US$240 billion in Q4 2025, with projected CAPEX for 2026 expected to be US$175 billion to US$185 billion [6] - Revenue from GCP's AI products grew nearly 400% YoY in Q4 2025, with costs to run its AI models reduced by 78% [7] - 14 of Alphabet's AI-powered products have annual revenues exceeding US$1 billion, indicating significant adoption [8] Amazon (AWS) - AWS revenue surged 24% YoY to US$35.6 billion in Q4 2025, marking the fastest growth in 13 quarters [9] - Amazon's CAPEX reached US$39.5 billion in Q4 2025, a 42% YoY increase, with total CAPEX for 2025 at US$131.8 billion [9] - Projected CAPEX for 2026 is expected to be around US$200 billion, driven by demand for core and AI workloads [10] - Amazon's backlog increased 40% YoY to US$244 billion, reflecting strong demand [10] - AWS's Trainium and Graviton chips are generating a US$10 billion annual revenue run rate, growing at triple-digit percentages YoY [13] - Amazon Bedrock, a service for building AI applications, is utilized by over 100,000 companies and has a multi-billion-dollar annualized revenue run rate [13] - Amazon Connect reached a US$1 billion annualized revenue run rate in Q4 2025, growing at 30% YoY [13]

Core Insights - The Q4 earnings season for 2025 is progressing rapidly, with many S&P 500 companies, including Microsoft and Alphabet, reporting results amid the AI trend [1] Microsoft Earnings - Microsoft reported adjusted EPS of $4.14, a 24% year-over-year increase, and sales of $81.3 billion, growing 17% from the previous year [3] - Concerns have arisen regarding high capital expenditures (CapEx) totaling $37.5 billion, with $29.9 billion allocated for property and equipment to support Azure demand [5] - The Intelligent Cloud segment, which includes Azure, saw sales grow 28% year-over-year to $32.9 billion, but gross margins were impacted by ongoing AI investments [5] Alphabet Earnings - Alphabet achieved adjusted EPS of $2.82, a 31% increase year-over-year, with sales rising 18% [12] - Google Cloud revenues surged by 48% to $17.7 billion, driven by increased adoption of enterprise AI solutions [12] - CapEx guidance for 2026 is projected to be between $175 billion and $185 billion, indicating a significant investment in future growth [13] Market Reactions and Valuation - Both Microsoft and Alphabet have faced negative market reactions post-earnings, with Microsoft experiencing more pressure [17] - Microsoft shares have underperformed the S&P 500 over the last five years, with a 62% increase compared to the S&P 500's 82% gain [11] - Despite the negative sentiment, both companies are seeing positive earnings estimate revisions, indicating bullish trends for their current fiscal years [10][16]

Core Insights - Alphabet (GOOGL) reported fourth-quarter 2025 earnings of $2.82 per share, exceeding the Zacks Consensus Estimate of $2.57 by 9.73% and showing a 31.16% increase from $2.15 per share in the same period last year [1] - Despite strong earnings, GOOGL shares fell approximately 3% in extended trading and 2.63% in pre-market trading on February 5, primarily due to the forecasted capital expenditure (capex) for 2026 of $175 to $185 billion, which represents more than double the capex from the previous year [2][10] Financial Performance - Alphabet's revenues for Q4 2025 reached $97.23 billion, surpassing the Zacks Consensus Estimate of $94.79 billion by 2.58% and marking a 19.12% increase from the year-ago quarter [4] - The company's net income for the quarter surged to $34.46 billion, a 30.0% increase from the previous year, while the total net income for 2025 reached $132.17 billion, up 32.01% from 2024 [4] - Operating income for Q4 was $35.94 billion, reflecting a 16.02% increase year-over-year, with total operating income for 2025 reaching $129.04 billion, a 14.81% increase from 2024 [5] Segment Performance - Google advertising revenues in Q4 reached $82.28 billion, up 13.56% from the previous year, with revenues from Google Search & other increasing to $63.07 billion, a rise of 16.73% [6] - Revenues from Google Services increased by 13.99% year-over-year to $95.86 billion, with operating income from this segment reaching $40.13 billion, a 22.22% increase from the prior year [7] - The Google Cloud business saw significant growth, with revenues rising 47.75% year-over-year to $17.66 billion and operating income increasing by 153.45% to $5.31 billion, driven by advancements in AI Infrastructure and enterprise AI Solutions [8] Market Outlook - Alphabet has an average brokerage recommendation (ABR) of 1.27 on a scale of 1 to 5, indicating a strong buy sentiment among analysts, with 83.93% of recommendations classified as Strong Buy and Buy [9][11] - The average price target for Alphabet, based on short-term estimates from 53 analysts, is $347.02, representing a 4.19% increase from the last closing price of $333.04 [12] ETF Exposure - Several ETFs have significant exposure to Alphabet, including Global X PureCap MSCI Communication Services ETF (29.38%), Fidelity MSCI Communication Services Index ETF (14.75%), Vanguard Communication Services ETF (13.98%), iShares Global Comm Services ETF (12.74%), and Communication Services Select Sector SPDR Fund (11.45%) [13]

Core Viewpoint - Artificial intelligence (AI) is significantly impacting the stock market, with Alphabet being a key player among the "Magnificent Seven" tech companies driving advancements in hardware and software [1] Company Overview - Alphabet's stock surged by 65% last year, indicating strong market confidence and interest from institutional investors [2] - The company is recognized for its diverse revenue streams, primarily from its advertising business on Google and YouTube, along with subscriptions and consumer electronics [4] - Alphabet is also making strides in cloud computing, competing with major players like Amazon Web Services and Microsoft Azure [4] Financial Performance - Alphabet's services segment, which includes advertising, subscriptions, and devices, boasts a 40% operating margin for the first nine months of 2025, while Google Cloud Platform has a 21% margin [5] - Over the trailing 12 months, Alphabet has emerged as the most profitable AI business among major hyperscalers, strategically investing profits across the AI value chain [6] Competitive Advantage - The company's vertically integrated ecosystem allows it to control various aspects of its value and supply chain, enhancing its operational efficiency and market position [8]

Core Viewpoint - KeyBanc analyst John Vinh upgraded both Advanced Micro Devices, Inc (AMD) and Intel Corp (INTC) stocks due to strong server demand for artificial intelligence [1] Group 1: Server Demand and Market Trends - December cloud data indicated a modest pullback in traditional servers as providers retired older instances, leading to a 2% month-over-month decline in compute processor instances, but an 11% year-over-year increase [2] - Total cloud instances also fell 2% sequentially while rising 10% from a year ago, with Vinh favoring Intel over AMD for near-term instance momentum [3] Group 2: Company Performance - Intel's instances declined 3% month-over-month, but its newest Granite Rapids generation saw a 12% month-over-month increase to 1,933 instances, driven by AWS deployments [4] - AMD's processor instances remained flat month-over-month in December, with a 16% year-over-year increase [4] Group 3: Growth and Valuation - Turin instances grew 4% month-over-month to 2,252, supported by deployments across Alibaba, AWS, and GCP, while combined latest-gen AMD growth (Turin/Genoa) increased 2% month-over-month [5] - Vinh upgraded AMD's rating from Sector Weight to Overweight with a $270 price forecast based on 34x his 2026 EPS estimate of $7.93, noting AMD trades at 32x the 2026 consensus EPS compared to peers averaging 27x [5] - Intel's rating was also upgraded from Sector Weight to Overweight with a $60 price forecast based on 4.0x EV/S on his 2026 revenue estimate of $57.8 billion, while Intel trades at 4.3x consensus EV/S versus a three-year median of 2.6x [6] Group 4: Price Actions - AMD stock increased by 6.14% to $220.30, while Intel stock rose by 3.15% [6]

Core Insights - Alphabet has recently made significant moves, including a $4 billion investment from Berkshire Hathaway and the acquisition of Intersect for $4.75 billion, which has led to a surge in its stock price to all-time highs [1][2]. Group 1: Acquisition Details - Alphabet announced a definitive agreement to acquire Intersect, a company specializing in data center and energy infrastructure solutions, for $4.75 billion [2]. - The acquisition aligns with Alphabet's strategy to enhance its capabilities in artificial intelligence (AI) and energy management, which are critical for the future of its operations [2][8]. Group 2: Importance of Intersect - Intersect develops utility-scale renewable energy solutions for data centers, utilizing various power generation sources like wind, solar, and battery, which allows for efficient energy management [5][6]. - The rising costs of energy are a significant concern for AI developers, and Intersect's expertise in energy management can help Alphabet mitigate these costs as AI workloads increase [6][7]. Group 3: Strategic Implications - By acquiring Intersect, Alphabet aims to gain control over its future energy costs, improving efficiency in accessing data center capacity compared to relying on external utility providers [8]. - This move is consistent with Alphabet's vertically integrated business model across its various sectors, including search, cloud, advertising, and consumer electronics [9].

Core Insights - Alphabet (GOOGL) is experiencing significant growth in its Google Cloud segment, which now constitutes over 14% of its total revenue, with a 31.2% year-over-year increase in revenue to $41.04 billion for the nine-month period ending September 30, 2025 [1][9] - The company is focusing on expanding its AI infrastructure, which is attracting enterprise clients and driving demand for its Google Cloud Platform (GCP) services, particularly in AI solutions and cybersecurity [2][3] Google Cloud Performance - Google Cloud's revenue growth is bolstered by a 46% sequential increase in cloud backlog, reaching $155 billion by the end of Q3 2025 [1] - Products developed on Google's generative AI models have seen over 200% year-over-year revenue growth in Q3 2025 [2][9] Competitive Landscape - GOOGL faces stiff competition in the cloud market, with Amazon holding a 29% market share, Microsoft Azure at 20%, and Google Cloud at 13% as of Q3 2025 [4] - Amazon is heavily investing in its AWS infrastructure, committing $125 billion in capital expenditure for 2025, while Microsoft Azure reported a 40% revenue increase in constant currency, driven by AI demand [5][6] Investment and Growth Strategy - Alphabet plans to invest between $91 billion and $93 billion in capital expenditures for 2025, with expectations for further increases in 2026 to enhance its AI infrastructure [3][9] - The acquisition of Wiz is anticipated to strengthen Google Cloud's competitive position against Amazon and Microsoft [3] Stock Performance and Valuation - GOOGL shares have appreciated 60.5% over the past 12 months, significantly outperforming the broader Zacks Computer and Technology sector, which returned 21.6% [7][8] - The forward 12-month price/sales ratio for GOOGL is 9.67X, compared to the sector average of 6.55X, indicating a premium valuation [13]