Alphabet GOOGL shares have dropped 7% in the past three months, underperforming the broader Zacks Computer & Technology sector’s decline of 2.8%. The drop can be attributed to rising capital expenditure as GOOGL focuses on building its AI infrastructure. In the second quarter of 2026, capital expenditure doubled to $44.9 billion, and the company reported…
Alphabet GOOGL shares have dropped 7% in the past three months, underperforming the broader Zacks Computer & Technology sector’s decline of 2.8%. The drop can be attributed to rising capital expenditure as GOOGL focuses on building its AI infrastructure. In the second quarter of 2026, capital expenditure doubled to $44.9 billion, and the company reported negative free cash flow (FCF) of $5.855 billion. Alphabet raised 2026 capital expenditure guidance to the $195-$205 billion range and expects investment to increase significantly again in 2027. Higher depreciation, energy and data-center operating costs will consequently hurt profits, while FCF is expected to remain under pressure.
The question that investors are now asking is what return Alphabet will earn on this huge AI-related investment. And what to do with GOOGL stock amid rising leverage and execution risks? Let’s dig deep to find out.
GOOGL Stock Suffers From Stiff Competition
Apart from risks associated with the huge AI-related capital expenditure, Alphabet’s prospects suffer from intensifying competition from the likes of Microsoft MSFT, Amazon AMZN, OpenAI, Anthropic, Apple AAPL and Meta across its operational footprint.
GOOGL Stock’s Price Performance
Zacks Investment Research
Image Source: Zacks Investment Research
Alphabet is facing stiff competition in the cloud computing space from Microsoft and Amazon. According to Synergy Research Group’s second-quarter 2026 data, Amazon maintained a strong lead in the market, though Microsoft and Alphabet’s Google continued to achieve substantially higher growth rates. Amazon, Microsoft and Alphabet’s market share were roughly 28%, 20% and 15%, respectively.
Google Cloud remains supply constrained. To meet customer demand before its internal infrastructure comes online, Alphabet plans to use more third-party capacity, which the company said will create modest near-term margin pressure. The significant infrastructure buildout will simultaneously raise depreciation and related operating costs.
In the search domain, Google continues to dominate with a roughly 91.1% share, followed by Microsoft’s Bing, with a 4.5% share, per the latest data from StatCounter. In the consumer technology market, Alphabet faces stiff competition from Apple.
Meanwhile, Alphabet continues to face substantial antitrust uncertainty across Search and advertising technology. A U.S. court’s final judgment in the Search case imposed restrictions on Google’s distribution arrangements and required certain search-data sharing and syndication services. In ad tech, the Department of Justice has proposed remedies that Alphabet says could materially affect its business, while European competition proceedings remain another source of uncertainty. The company also disclosed that the European court upheld an Android-related antitrust decision, resulting in payment of $5.2 billion in previously accrued fines and interest in July 2026. Alphabet also recorded $2.1 billion of charges related to the PriceRunner litigation in the second quarter of 2026.
GOOGL Shares Are Overvalued
Alphabet shares are overvalued, as suggested by a Value Score of C.
GOOGL stock is trading at a forward 12-month price/earnings (P/E) of 20.85X, a premium compared with the broader sector’s 20.38X.
However, Alphabet shares are trading at a discount compared with Microsoft, Apple and Amazon, shares of which are trading at a P/E multiple of 24.07, 34.96 and 21.78, respectively.
GOOGL Stock’s Valuation
Zacks Investment Research
Image Source: Zacks Investment Research
GOOGL’s Prospects Ride on AI Initiatives
Alphabet’s prospects are increasingly driven by AI, which is no longer a standalone initiative. AI is becoming the core growth engine across Search, Cloud, subscriptions, advertising, and emerging businesses. AI Mode has surpassed 1 billion monthly active users, while AI-powered Search features are driving incremental query growth. Alphabet says Gemini integration is improving Google’s ability to understand longer queries that historically were difficult to monetize. AI-powered campaigns such as AI Max are also generating more conversions at comparable advertiser returns. Generative AI is actually expanding rather than destroying Google’s search monetization opportunity.
Moreover, Alphabet’s plan to offer full-stack — custom TPUs, data centers, Gemini models, Vertex AI, Workspace, security, Wiz, Search and distribution — is attracting enterprise customers. Alphabet has begun selling TPU systems into customers’ own data centers. Most related revenue will arrive in 2027, rather than 2026.
Google Cloud continues to gain traction with revenues jumping 82% year over year to $24.8 billion in the second quarter of 2026. Cloud backlog reached an extraordinary $514 billion, up more than $50 billion sequentially. Alphabet expects slightly more than half of that backlog to convert to revenue during the next 24 months. This offers strong revenue visibility and provides evidence that the massive infrastructure build is backed by actual customer demand rather than purely speculative AI spending.
2026 Earnings Estimate Revisions Positive for GOOGL Stock
The Zacks Consensus Estimate for 2026 earnings is pegged at $20.51 per share, up 41.4% over the past 60 days, indicating 89.73% growth from the figure reported in 2025. The consensus mark for 2026 revenues is pegged at $433.58 billion, indicating 26.44% year-over-year growth.
Alphabet Inc. Price and Consensus
Alphabet Inc. Price and Consensus
Alphabet Inc. price-consensus-chart | Alphabet Inc. Quote
The consensus mark for third-quarter 2026 earnings is pegged at $2.93 per share, down 3.9% over the past 60 days, suggesting 2.09% year-over-year growth. The Zacks Consensus Estimate for third-quarter 2026 revenues is pegged at $111.26 billion, implying 27.2% year-over-year growth.
Conclusion
Alphabet’s prospects present a balanced risk-reward profile. The company’s aggressive AI infrastructure investments, rising depreciation and data-center costs, negative near-term free cash flow, regulatory uncertainty and competition across cloud, search and consumer technology could weigh on profitability. The slight premium valuation to the broader sector also limits room for execution missteps.
However, Alphabet’s long-term growth prospects remain supported by AI-driven Search improvements, accelerating Google Cloud adoption, a massive Cloud backlog and growing enterprise uptake of Gemini and TPUs. Positive 2026 earnings estimate revisions further underscore improving expectations. Given these competing factors, investors may prefer to maintain a wait-and-see approach to GOOGL stock until AI investments translate into more consistent free-cash-flow growth and operating leverage.
Alphabet currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
Functional
Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
