Wedbush Adds Alphabet and Reddit to Best Ideas List on AI, Ad Momentum

Wedbush has added both Alphabet (GOOGL) and Reddit (RDDT) to its influential Best Ideas List, according to a note published Thursday. The firm's investment thesis for Alphabet centers on accelerating cloud growth driven by artificial intelligence, while Reddit was recognized for its strong advertising momentum and untapped data licensing potential.

Alphabet's Cloud Gains Tempered by AI Spending

Wedbush analyst Ygal Arounian stated that Alphabet's second-quarter results reinforce the view that the company's "full-stack AI position is translating into real Cloud share gains." The firm pointed to several strong performance indicators from the quarter, attributing them to the company's AI investments.

Key Google Cloud metrics highlighted by Wedbush include:

• Revenue Growth: 82% year-over-year to $24.8 billion, an acceleration from 63% in the first quarter.
• Operating Margin: Expanded to 35.6%, up from 20.7% in the same period a year ago.
• Backlog: Grew to a substantial $514 billion.

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However, Wedbush also noted that this growth comes at a significant cost. Alphabet raised its full-year 2026 capital expenditure guidance to $195-$205 billion to fund its AI infrastructure build-out. This increased spending pushed the company's free cash flow to a negative $5.9 billion in the second quarter. The firm now projects Alphabet's free cash flow will remain negative through 2027 before inflecting in 2028.

Reddit Tapped for Ad Growth and Data Licensing Upside

For Reddit, Wedbush sees strong momentum in its advertising business ahead of its second-quarter results, which are expected on July 30. The firm noted that the number of active advertisers on the platform grew more than 75% year-over-year in the first quarter, with performance-based ad formats now accounting for over 60% of total ad revenue.

Beyond advertising, Wedbush sees significant upside in Reddit's AI data-licensing agreements, which include deals worth approximately $60 million annually with Google and $70 million with OpenAI. The analyst believes the "renewal economics step up" for these deals, representing potential value not yet reflected in consensus estimates. Despite a recent share price drop on reports that Reddit may restrict Google's data access, Wedbush expects "ultimately there will be a relationship with potential deeper integrations."