Merifund Capital Management on Alphabet Q1 Earnings

Alphabet's latest first-quarter results sharpen the focus on cloud profitability, rising capital expenditure and compute constraints, whilst advertising still underpins cash flow and valuation scrutiny for global investors.

Alphabet's first-quarter update puts Google Cloud at the centre of investor attention, and Merifund Capital Management circulates analysis that treats the release as a test of earnings durability as well as growth. Compared with the same quarter a year earlier, group revenue rises 22% to $104.9bn for the three months to the end of March and net income advances 81% to $59.7bn.

Merifund Capital Management Pte. Ltd.'s Director of Private Equity, Anthony Saunders, put it this way: "the quarter makes cloud profitability impossible to ignore, because margins now sit in territory that changes how institutions model the business, not just how they narrate it". Earnings per share of $4.9 in the quarter underlines the point, with operating income up 30% to $37.9bn compared with the same quarter a year earlier and the operating margin widening to 36.1% from 33.9% over the same period.

Within the quarter, measured against the same quarter a year earlier, Google Services revenue rises 16% to $85.5bn, led by Search and other activities up 19% to $57.6bn. YouTube advertising grows 11% to $9.5bn over the same period, whilst network revenue slips 4% to $6.7bn as parts of the advertising market remain uneven.

Equity markets keep a cool head immediately after the release. The share price trades 0.6% lower in after-hours dealing, even as it sits close to its 52-week high of $337.2 at the latest close, leaving market capitalisation near $4.1tn. The stock is up 115% over the last year, and a forward price to earnings multiple of 32.6 based on projections for the coming year leaves little room for disappointment. Saunders describes "a market that is checking the price tag rather than the execution".

Google Cloud provides the clearest evidence of change. Compared with the same quarter a year earlier, cloud revenue grows 63% to $19.1bn in the quarter and the division accounts for 18% of group revenue, up from 13.6% over the same period. Operating income triples to $6.3bn and the operating margin expands to 32.9% from 9.4% compared with the same quarter a year earlier. A contracted cloud backlog of about $439bn at quarter end, almost double the level at the end of the previous quarter, strengthens visibility on future revenues.

Generative AI demand sits behind much of that momentum. Products built on those models rise nearly 800% compared with the same quarter a year earlier, Gemini Enterprise usage increases 40% compared with the previous quarter, and the Gemini API processes around 16bn tokens per minute at quarter end, up from 10bn in the previous quarter.

Merifund Capital Management's assessment keeps returning to one question: how quickly infrastructure catches up with demand. Saunders frames the trade-off as "a race between demand and the infrastructure required to serve it, with compute capacity and power availability setting the timetable for revenue realisation".

Capital expenditure totals $35.7bn in the quarter, and guidance points to $175.9bn to $186.1bn for the full financial year, more than double the $91.9bn spent in the previous financial year. Management indicates that around 60% of the planned outlay for the full financial year goes on servers, with 40% allocated to data centres and networking equipment, while power, land and supply chain constraints remain part of the near-term picture.

Advertising still supplies roughly 70% to 75% of group revenue in the quarter, and advertising revenue of $73.7bn rises 15.5% compared with the same quarter a year earlier. Saunders highlights "a revenue sensitivity that sits in plain sight: cloud diversifies the story, but advertising still pays for the investment bill in the quarter", leaving investors to judge whether search behaviour shifts materially as generative AI becomes more widely used.

For Merifund Capital Management, the message of the quarter is that Alphabet now pairs a cash-rich advertising engine with a cloud franchise that produces meaningful profit, while the next test sits in disciplined delivery of capital plans. Saunders sees "sustained cloud margins in the 30s, alongside disciplined capital allocation, as the clearest marker that this pivot is durable".

About Merifund Capital Management

Merifund Capital Management Pte. Ltd. (UEN: 201024554E) is a Singapore-headquartered hedge fund manager established in 2010. The firm operates traditional long-only portfolios alongside long/short equity, global macro, event-driven and systematic strategies, using derivatives where appropriate to manage exposures and pursue opportunities with a focus on capital preservation, liquidity and prudent risk management. ESG considerations are integrated within its process in line with global sustainability standards. Merifund serves accredited investors, family offices, foundations and endowments, and continues to broaden its offering with an eye on retail access. Insights are published at https://merifund.com/insights. Media enquiries or requests for further information can be directed to Tao Yang at [email protected], or via https://merifund.com.

COMTEX_478753806/2891/2026-05-08T04:57:04

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