Wedbush analyst Ygal Arounian on Thursday placed Alphabet and Reddit onto the firm's Best Ideas List, citing distinct catalysts for each company: rapid cloud share expansion for Alphabet and accelerating advertising product momentum for Reddit.
Alphabet
Arounian said second-quarter results reinforced Wedbush's view that Alphabet's full-stack AI positioning is converting into tangible Cloud share gains, even as the company increases AI-related spending that limits near-term profitability. Google Cloud posted revenue of $24.8 billion, an 82% increase year-over-year and an acceleration from 63% growth reported in the first quarter.
The Cloud segment also showed margin improvement and backlog expansion. Cloud operating margin widened to 35.6% from 20.7% a year earlier, and Cloud backlog grew to $514 billion.
At the same time, Wedbush highlighted Alphabet's upward revision to its full-year 2026 capital expenditure guidance to $195 billion-$205 billion. The higher capex contributed to a negative free cash flow result of ($5.9) billion in the second quarter.
Reflecting this guidance change, Wedbush raised its own capex estimates for Alphabet to $205 billion in 2026 and $297 billion in 2027. The firm now expects free cash flow to remain negative through 2027, with an anticipated inflection back to positive cash flow in 2028.
For Reddit, Arounian flagged strong traction in advertising products in the run-up to the company's second-quarter results, which are due July 30. Active advertisers on the platform increased by more than 75% year-over-year in the first quarter, and performance-oriented ad formats now account for more than 60% of Reddit's ad revenue.
Wedbush also pointed to Reddit's AI data-licensing agreements with Google and OpenAI, valued at roughly $60 million and $70 million annually, respectively. The firm expects the renewal economics on those deals to improve, which it views as upside that has not yet been captured in consensus estimates.
Despite those positives, Reddit experienced an approximately 8% share decline on July 22 following reports that it might restrict Google's access to its content. Arounian expressed the expectation that, ultimately, a relationship will exist with potential for deeper integrations between the companies.
Takeaway
Wedbush's move to add Alphabet and Reddit to its Best Ideas List rests on a product- and revenue-centric view: Alphabet's AI-led Cloud momentum is driving outsized growth and backlog gains, while Reddit's advertiser base and shift toward performance formats underpin revenue progress and potential upside from data-licensing renewals. Offsetting those drivers is a materially higher capex path at Alphabet that delays free cash flow recovery into 2028.