US Internet Giants' 1Q26 Earnings: More Similar Than Different; AI and Cloud Remain Key Themes

Overview

This report reviews Meta, Amazon, and Alphabet's 1Q26 earnings. Bernstein believes the fundamentals of these three US internet giants were 'more similar than different': revenue generally beat expectations, EBIT dollars grew ~30% YoY, and AI continues to demonstrate returns in advertising and cloud businesses. The main differences lie in cost pass-through ability and capex pressure: Amazon and Google can partially pass infrastructure costs to enterprise customers via cloud businesses, whereas Meta needs to absorb higher supply chain and infrastructure costs internally in the near term.

Core views

The core view remains bullish on the US large-cap internet sector, with a preference for Meta and Amazon. Although Meta's price target was lowered due to soft 2Q revenue guidance, unclear AI product progress, and raised capex, the report considers its valuation cheap, notes emerging operating leverage in ad revenue, and sees potential upside from Consumer AI. Amazon's AWS growth, backlog, and improved narrative around Trainium/Graviton-related AI infrastructure, combined with no increase in full-year capex, make it resemble a stable compounding asset. Alphabet delivered the cleanest results with strong Search and Cloud, but significant 2027 capex increases, AI search competition, and regulatory risks limit rating upgrades.

Analysis framework

The report combines earnings review with valuation revisions, comparing 1Q26 revenue, advertising, cloud, EBIT, EPS, capex, and 2Q guidance against consensus and Bernstein estimates, subsequently revising revenue, margins, EPS, capex, and price targets. For valuation, Meta and Alphabet use a 50/50 blend of DCF and relative valuation; Amazon uses a 50/50 blend of SOTP and DCF.

Methodology notes

• Valuation methodsDCF

  Discounted Cash Flow Valuation

  Alphabet and Meta use a 10% WACC and 3.5% terminal growth rate; Amazon uses a 9% WACC and 3.5% terminal growth rate.

• Valuation methodsEV/Sales

  Enterprise Value/Sales Multiple

  Meta applies a 2027e EV/Sales multiple of 7x, down from the previous 8x, reflecting unclear AI product progress and soft 2Q revenue guidance.

• Valuation methodsEV/EBIT

  Enterprise Value/EBIT Multiple

  Alphabet applies a 2027e EV/EBIT multiple of 28x, up from the previous 25x, primarily driven by strengthening Google Cloud momentum.

• Valuation methodsSOTP

  Sum-of-the-Parts Valuation

  In Amazon's valuation, the Retail segment is valued at 2027E EV/Sales 3x and the AWS segment at 2027E EV/EBIT 25x, each weighted 50% alongside DCF.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• META

  Core recommendation, maintaining Outperform

  Strengths

  Fastest revenue growth; ad revenue up 33% YoY; AI improving core engagement and ad effectiveness; Consumer AI and e-commerce initiatives provide potential upside.

  Weaknesses

  Soft 2Q revenue guidance; FY26 capex raised; inability to directly pass infrastructure costs to enterprise customers like cloud providers.

  Comparison

  Compared to Amazon and Google, Meta lacks a hyperscale cloud business, making AI capex returns more uncertain; however, valuation is cheaper with greater upside elasticity.

  Risks

  Regulation; digital ad maturity; privacy changes; Metaverse investments; insufficient AI capex ROIC.

• AMZN

  Core recommendation, maintaining Outperform

  Strengths

  AWS growth re-accelerating; strong backlog; solid ad and retail revenue; full-year capex not raised; AWS margin expansion.

  Weaknesses

  Conservative 2Q operating profit guidance; cost pressures from fuel, LEO satellites, SBC, and grocery expansion.

  Comparison

  Unlike Meta, Amazon can pass some infrastructure costs to enterprise customers via AWS; compared to Google, AWS growth is slightly slower but commercialization path is more mature.

  Risks

  Antitrust and privacy regulation; new investment cycles in Grocery/Healthcare/AI; low-price e-commerce competition; intensified AWS competition.

• GOOGL

  Maintaining Market-Perform

  Strengths

  Search remains strong; Google Cloud up 63% YoY; cloud backlog exceeds USD 460B; external TPU sales and Gemini Enterprise offer AI monetization opportunities.

  Weaknesses

  YouTube and Network slightly weak; increased risk of depreciation and operating deleverage in 2H26; potential significant capex increase in 2027.

  Comparison

  Google has the cleanest earnings quality with standout cloud growth and TPU narrative; however, AI search competition, regulation, and rising capex make risk-reward less attractive than Meta and Amazon.

  Risks

  AI diversion of search traffic; competition for AI search pathways from OpenAI and Meta; antitrust and privacy regulation; capex exceeding expectations.

Key data

• Meta 1Q26 Revenue Growth33% Y/Y, Revenue USD 56.3BAd revenue grew 33% YoY; Other revenue grew approx. 74% YoY.
• Google 1Q26 Revenue Growth22% Y/Y, Revenue USD 109.9BSearch grew 19% YoY; Google Cloud grew 63% YoY.
• Amazon 1Q26 Revenue Growth17% Y/Y, Revenue USD 181.5BAWS grew 28% YoY; Advertising grew 24% YoY; Online Stores grew 12% YoY.
• EBIT Dollar GrowthApprox. 30% Y/Y for all three companiesReflects revenue growth and operating leverage, though future depreciation and infrastructure costs may pressure margins.
• FY26 Capex GuidanceMeta: USD 125-145B; Google: USD 180-190B; Amazon: USD 200BMeta raised guidance by approx. USD 10B; Google raised by approx. USD 5B; Amazon maintained unchanged.
• Cloud Business BacklogAWS approx. USD 364B; Google Cloud over USD 460BAWS backlog grew approx. 50% from USD 244B in 4Q25; Google Cloud backlog nearly doubled QoQ.
• Price Target RevisionsGOOGL USD 390 (+45); META USD 850 (-50); AMZN USD 315 (+15)Price targets raised for Alphabet and Amazon; Meta's PT lowered but Outperform rating maintained.

Impact & implications

The report's assessment of investment implications is positive: large internet platforms retain advantages in distribution, data, customers, and capital across digital advertising, cloud computing, and AI infrastructure, reducing end-game risks. While the market may focus on capex and 2H26 margin pressure in the short term, the report argues these are not new issues, and Amazon and Google can more easily pass costs to enterprise customers via cloud; although Meta faces near-term pressure, it offers the highest potential ROIC upside if Consumer AI unlocks incremental returns.

Risks

• Significant potential capex increase in 2027 could pressure depreciation, free cash flow, and margins.
• Uncertainty remains regarding returns on AI infrastructure investment, especially given Meta's lack of a directly monetizable hyperscale cloud business.
• Search and digital advertising face risks from AI traffic diversion, privacy policy changes, and competition for ad ROI.
• Amazon faces increased capital intensity from low-price e-commerce competition, AWS competition, and new business investment cycles.
• Alphabet, Meta, and Amazon all face antitrust, privacy, and other regulatory investigations in the US and overseas.
• Macroeconomic uncertainty, operational changes in Europe, geopolitical shifts, and currency fluctuations may impact 2Q and 2H revenue guidance.

What to watch

• Whether Meta's 2Q26 revenue falls within the 22%-28% growth guidance range, and whether ad pricing and DAP resume sequential growth.
• Whether Meta's Consumer AI, Spark Muse, business messaging, and e-commerce AI can demonstrate returns on non-core AI investments.
• Whether AWS growth continues accelerating from 28% toward the 30% range, and whether backlog from non-frontier lab customers continues expanding.
• Sustainability of Google Cloud's 63% high growth, and the pace of backlog conversion and external TPU revenue in 2H26 and 2027.
• Impact of depreciation, infrastructure costs, and AI compute investment on margins for all three companies in 2H26.
• Further guidance from Google and Meta regarding 2027 capex, and whether Amazon maintains capital discipline.