Alphabet's (GOOG, GOOGL) Q4 financial report was "very strong" as expected, with the substantial increase in capital expenditure guidance the only factor holding the stock back from further gains, RBC Capital Markets said in a note Thursday.

Analysts said that while the substantial capex guidance will pressure free cash flow, it's driven by demand across Google's integration of infrastructure, frontier LLM development, and distribution that is essential for monetizing artificial intelligence.

The brokerage increased its 2026 estimates to $11.78 per share in earnings from $11.12, and $465.83 billion in revenue from $455.50 billion.

Analysts noted the increasing use of Alphabet's AI-powered search features, with users turning to AI search twice as often as when they first started using it and roughly one in six queries using voice or images instead of text.

They also noted a significant increase in Gemini engagement following the December launch of Gemini 3.

RBC retained an outperform rating on Alphabet stock and increased its price target to $400 from $375.

Alphabet shares were down more than 3% in recent Thursday trading.

Price: 322.39, Change: -10.95, Percent Change: -3.28