Last week’s tech earnings put investors’ attention back on AI spending and whether it’s actually paying off.
One megacap stands out, surging nearly 10% over the past five trading days, the best five-day performance among the Magnificent 7 stocks.
That’s Alphabet. The stock is up 22% year to date as of writing, also the strongest performance in the Mag 7 group.
Magnificent 7 stock year-to-date performance as of May 4, 2026:
- Alphabet (GOOGL) +22.44%
- Amazon (AMZN) +17.86%
- Nvidia (NVDA) +6.42%
- Apple (AAPL) +1.83%
- Meta Platforms (META) -7.53%
- Tesla (TSLA) -12.72%
- Microsoft (MSFT) -14.47%
Here’s what a veteran investor thinks could be next for Alphabet stock.
Alphabet stands out as AI spending delivers returns
Veteran tech investor Dan Niles had already picked Alphabet as his top long-term pick heading into earnings.
“In previewing the Mag 7 results last Sunday, I wrote about my concerns given the large rally coming into earnings, but that Google was my favorite long-term,” Niles wrote in an X post published on May 3. He is the founder of Niles Investment Management.
“In looking at the results, Google did in fact perform the best and gained 12% last week while the S&P gained 1% and the other four Mag7 names that reported declined 2% on average.”
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The strong stock reaction came after a solid earnings report.
The Google parent reported first-quarter results on April 29, with earnings per share of $5.11, well above analyst estimates of $2.62. Revenue rose 20% from a year earlier to $109.9 billion, topping expectations of $106.79 billion.
Growth was driven in part by the cloud. Google Cloud generated $20.02 billion in revenue, ahead of the $18.05 billion analysts had expected.
“Our enterprise AI solutions have become our primary growth driver for cloud for the first time in Q1,” Alphabet CEO Sundar Pichaisaid in the earnings call.
The company is also doubling down on spending. Alphabet raised its 2026 capital expenditure outlook to a range of $180 billion to $190 billion, up from its prior $175 billion to $185 billion. CFO Anat Ashkenazi said 2027 spending is expected to “significantly increase” from 2026.
That combination of rising investment and accelerating growth is what investors are rewarding, Niles said.
“Estimates for AI capex growth for 2026 for the five biggest spenders, which started the year close to 30%, which moved to 60% post Q4 results, are now at 70% following the guidance this past week on earnings results.”
He added that markets are now focused on ROIC (return on invested capital), not just spending.
“A quick summary of how to think of hyperscaler results were if ROIC was good, then the stock did well. In other words, if capex went [up ,] then operating income estimates had to as well for the stock to be fine.”
Niles added that Alphabet increased capex, but Google Cloud revenue accelerated from 48% year over year in Q4 to 63% growth in Q1. He said the company had the best ROIC of the Mag 7 group, with a solid revenue beat and an even bigger EPS beat, while forward estimates moved higher.
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The rest of the Mag 7 face a tougher AI test
Elsewhere, results were more mixed as investors questioned whether rising spending would translate into profits.
At Amazon, cloud growth improved but fell short of expectations.
“Amazon maintained capex but AWS growth ‘only’ accelerated from 24% to 28% & they guided slightly below consensus for operating profit for the June quarter though guided revenue above,” Niles wrote. “As a result, it is not surprising that the stock was up 1% in reaction.”
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Microsoft also disappointed on guidance.
“Microsoft guided June quarter revenue below the street despite guiding capex above what investors expected. Azure growth only increased from 38% growth to 39% growth,” Niles added.
As for Meta, the concern is spending without clear leadership in AI infrastructure.
“Meta guided revenues inline for Q2 but raised capex guidance. Investors worry about them overspending, given they do not have a leading LLM or a public cloud model like the big three hyperscalers above.”
Meanwhile, Apple delivered solid results but is still in catch-up mode on AI.
“Apple had upside to the March quarter and guided revenues to grow 14-17% y/y for the June quarter versus consensus of 9% growth,” Niles wrote.
Niles noted that margins, a key concern for the iPhone maker due to rising memory costs, came in only slightly below expectations. He also pointed to a sharp increase in R&D, up 34% from a year ago, as Apple works to close the gap in AI.
Apple shares rose about 3% following the results.
Of all the Mag 7 companies, Niles remains confident in Alphabet stock.
“Looking forward, Google remains my favorite name of the Magnificent 7 given they have the full AI stack and good ROIC on their AI spend,” he said.
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