After hitting $370 on July 15, Alphabet (GOOGL) sold off sharply last week, days before an earnings report that could define its place in the AI race. The Google stock slide followed a report that Gemini 3.5 Pro, Alphabet's most powerful AI model, is delayed.
It also spotlights a bigger shift, since Alphabet just broke a roughly 20-year habit to fund the AI build-out it must defend on Wednesday.
Alphabet (GOOGL) fell by more than 9% between July 16 and 17 after the delay was reported, amid heavy selling volume. That volume matters because it suggests large holders, not just regular retail traders, were cutting exposure.
The timing stings. Alphabet reports second-quarter results on July 22 after the close, and Alphabet's Gemini setback has raised the bar for what those numbers must show.
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Yet the sell-off traces back to one bigger figure. Investors are nervous about the $190 billion Google now plans to spend on AI this year, and whether it will ever pay off.
That budget is the heart of the story. Alphabet's 2026 capital spending guidance sits between $180 billion and $190 billion, roughly double last year's $91 billion, with an even higher 2027 already flagged.
For the first time in years, its cash machine cannot cover the bill on its own. Free cash flow roughly halved in the first quarter, even as capital spending more than doubled from a year earlier.
So Alphabet did something it had avoided for roughly 20 years.
It launched an $80 billion equity raise, its first major stock sale in about two decades, that reversed years of buybacks, with Warren Buffett's Berkshire Hathaway adding $10 billion.
That reversal is why Wall Street now scrutinizes every dollar of this spending.
Here is the part that few readers see. Chips and data centers are capitalized and depreciated over five to six years, so today's spending becomes a rising cost that slowly erodes profit, long after the cash leaves.
Think of it like buying a delivery van. The cash goes out all at once, but the cost is booked in small yearly slices as the van wears down.
That shifts the key question. It is no longer how much Google spends, but whether AI revenue grows faster than the depreciation that spending creates.
Google Cloud is where that answer shows up first. It grew 63% last quarter to $20 billion at a record margin, and some previews expect close to $22 billion this time.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
