The AI Multiplier: Alphabet, Arista, and Shopify Supercharge 1Q 2026 and Beyond

After writing about SG stocks for the past few weeks, it’s time to switch gear.

In this post, I will share my thoughts on the latest quarterly earnings (1Q 2026) of my top three US holdings: Alphabet (GOOGL), Arista Networks (ANET), and Shopify (SHOP).

While it wasn’t intended during my initial investment, this trio are among the trailblazers in the AI value chain.

Alphabet scales the intelligence with its vertical TPU infrastructure, Arista provides the essential AI networking fabric, and Shopify applies these capabilities to the global marketplace.

Here’s a quick look at their latest revenue and free cash flow before I share my key takeaways.

Alphabet: Soaring into the Cloud

The standout highlight this quarter was the massive 63% year-over-year surge in Google Cloud revenue, which crossed the US$20 billion threshold for the first time.

Even more impressive is the scalability; operating income for the Cloud segment rocketed 3x to reach US$6.6 billion. This efficiency leap pushed Cloud’s operating margin from 18% in 1Q 2025 to a staggering 33% this quarter.

As I noted in my November comparision to Microsoft (MSFT), Alphabet’s vertically integrated AI stack—owning everything from the TPU hardware to the Gemini models—is providing the strategic flexibility to scale with industry-leading efficiency.

The demand for these enterprise AI solutions is so high that CEO Sundar Pichai noted cloud revenue could have been even higher if they were not currently “compute constrained.”

This indicates a significant level of “hidden” revenue waiting to be unlocked. Consequently, I am entirely comfortable with the 47% decline in Free Cash Flow (FCF) to US$10.1 billion.

I view this high Capex (US$35.7 billion) not as a cost, but as a “pre-payment” for future revenue. Every dollar spent on data centers and TPUs has a clear and immediate ROI given the burgeoning demand.

Critically, this growth isn’t coming at the expense of their core business.

Far from cannibalising Search, AI Overview and AI Mode are driving higher engagement, resulting in Search & Other revenue growing by 19% YOY to US$60.4 billion, with queries hitting all-time highs.

Holding to Participate in its Growth

Alphabet is currently operating at a world-class level, with a very bright multi-year outlook. By owning the silicon, the infrastructure, and the distribution, they are building a vertical moat that is incredibly difficult to replicate.

With a return that has more than doubled my initial investment, the stock has naturally moved into the top half of my holdings.

I don’t see the need to increase my stake further; as long as management continues to execute this “Full-Stack AI” playbook, I expect it to keep climbing the ranks of my portfolio through organic growth.

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Arista Networks: The Connecting “AI Fabric”

If Alphabet is building the AI engines, Arista Networks is building the high-speed “super-highways” that allow those engines to communicate.

The company delivered a standout performance with revenue growing 35.1% YOY to US$2.71 billion. Management also raised the floor for their full-year sales growth, signaling confidence in hitting roughly US$11.5 billion (27.7% YOY) for 2026.

Like Alphabet, were it not for the industry-wide shortage of wafers, silicon, and optics, revenue would likely have been even higher.

While these supply constraints put slight pressure on gross margins, it’s a “happy” problem. Arista’s deferred revenue increased by another US$829 million this quarter to hit a record US$6.2 billion.

This translated into a massive surge in operating cash flow to US$1.7 billion—a 164% increase YOY!

That is “money in the bag.” The demand is already sold and paid for; Arista now simply needs to fulfil the orders.

Without getting bogged down in technicalities, Arista commands this demand because they are the rare player providing the specialised operating system (EOS) and hardware for both the “front-end” (standard data center) and “back-end” (AI GPU clusters).

This explains why a fourth major customer from the initial 2024 AI cohort has officially moved from proprietary InfiniBand to Arista’s Ethernet solutions at production scale.

Moreover, as AI scale-out requirements explode, we are seeing a shift with customers moving away from cheaper “white box” (generic) setups toward Arista’s premium “blue box” solutions.

In the world of multi-billion dollar AI clusters, the “savings” of generic gear aren’t worth the risk; these titans need the reliability that only Arista’s integrated stack provides.

Thinking in Years

Despite these robust results, Arista’s share price took a beating (down ~20%) following the announcement. The market had priced in perfection, and the mention of supply constraints threw a hammer at that momentum.

To me, this is a non-issue.

Having demand exceed supply is infinitely better than the alternative.

I remain confident that Arista will be a much larger company in three to five years, and the share price will eventually reflect that reality.

Like Alphabet, I am not increasing my stake today simply because it is already a top-five position in my portfolio—but I am a very happy “holder.”

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Shopify: The AI-Powered Commerce Grid

Alphabet builds the intelligence and Arista weaves the networking fabric.

Shopify?

Is where this power meets the real world: the global marketplace.

Like what Shopify President Harley Finkelstein alluded in the video: there is only a small number of companies at their scale to grow revenue by 34% YOY (US$3.2 billion) and still generate a free cash flow of US$476 million.

This growth isn’t just about more merchants; it’s about AI making those merchants smarter and faster:

• The “Sidekick” Effect: Shopify’s AI assistant, Sidekick, is becoming the “operating system” for entrepreneurs. Weekly active shops using the tool grew nearly 4x year-over-year, and merchants used it to build over 12,000 custom apps this quarter alone.
  
• AI-Driven Discovery: This is where the AI value chain connects. AI-driven traffic to Shopify stores skyrocketed 8x YOY, and orders originating from AI-powered searches jumped nearly 13x.
  
• Enterprise Momentum: High-volume brands (those doing >US$100M GMV) have nearly doubled in the last two years. Brands like LVMH and Victoria’s Secret are increasingly choosing “Blue Box” reliability over DIY “White Box” setups.

Buying the “SaaS-pocalypse” Dip

Despite beating both revenue and earnings estimates, Shopify’s stock price slid nearly 10% post-earnings and is now more than 30% down this year.

“SaaS-pocalypse” fear and a broader concern that high-growth software multiples are unsustainable as growth “decelerates” from the mid-30s to the high-20s.

Like my former students who often mistook decreasing acceleration for deceleration, I view this as a classic case of the market focusing on the “second derivative” (the rate of growth) rather than the sheer durability of the business.

Crucially, don’t forget the power of compounding: Even if Shopify’s growth slows to a steady 25% annually, its revenue and free cash flow will triple in just five years (1.25^5 = 3.05)!

When you look 10 years out, the numbers become even more staggering.

What’s even more important than the math is the underlying story: Shopify is becoming the Commerce Grid. Like how we rely on the electric grid, it will be a mission-critical utility for commercial entities, especially the big enterprise.

In February, I added back the stake I sold last October. If the price continues to drift downward, I might just add a little more in time to come.

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Setting the Standard in the AI Era

The short-term stock price is often a theatre of volatility, fuelled by a thousand and one reasons—or excuses—to change daily. But as long-term investors, we must look past the ticker.

Alphabet, Arista, and Shopify are not just passive beneficiaries of the AI trend; they are the architects of it.

They are leading their respective industries to figure out how to integrate AI at scale and, in the process, they are setting the standards that everyone else will eventually have to follow.

I didn’t invest in these companies simply to chase the AI trend; I invested in the spirit of innovation and disruption that defines them.

It is this DNA that allowed them to foresee the next major technological shift, adapt with speed, and propel themselves to the AI frontier.

All three are positioned to reap the greatest rewards tomorrow. Any temporary price drops along the way will likely be just a blip when viewed years from now.

I’ll leave you with the three-year performance of these “Standard-Setters” to ponder as you consider the road ahead.

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