We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Alphabet Drops 6% in a Month: Buy, Sell, or Hold the GOOGL Stock?
Read MoreHide Full Article
Key Takeaways
GOOGL shares fell 6.3% in a month as higher AI and cloud capex spooked investors.
AI Overviews has 2.5B monthly users, while AI Mode topped 1B monthly users within a year.
Google Cloud sees Enterprise AI as its primary growth driver, with 75% of customers using AI products.
Alphabet (GOOGL - Free Report) shares have dropped 6.3% in a month, underperforming the broader Zacks Computer & Technology sector’s return of 3.6%. GOOGL’s huge capital expenditure — between $180 billion and $190 billion — roughly double 2025’s level, with spending expected to rise further in 2027, has spooked investors. The company is suffering from capacity constraints despite the improving pace of server deployments and data center construction. This, along with higher depreciation expenses and related data center operations costs, including energy, is expected to hurt profitability. The Wiz acquisition is expected to have a low single-digit percentage point headwind to Google Cloud's operating margin for the remainder of 2026.
However, GOOGL’s prospects are benefiting from its growing AI-powered Search capabilities and significant investments in Cloud computing. So, what should investors do with GOOGL shares?
GOOGL Suffers From Stiff Competition & Higher Capex
Alphabet is facing stiff competition in the cloud computing space from Microsoft (MSFT - Free Report) and Amazon (AMZN - Free Report) . According to Synergy Research Group’s first-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%, 21% and 14%, respectively. In the search domain, Google continues to dominate with a roughly 90.39% share, followed by Microsoft’s Bing, with a 5.03% share, per the latest data from StatCounter. In the consumer technology market, Alphabet continues to face stiff competition from Apple (AAPL - Free Report) .
The question that investors are asking is whether the returns from AI investments will justify the enormous upfront costs. Most of GOOGL’s capital expenditure is marked for building AI and cloud infrastructure, including data centers, chips and servers for Gemini and cloud growth. Although Alphabet generates considerable cash flow ($174.4 billion on a trailing 12-month basis at the end of first-quarter 2026), the steep increase in capital expenditure is expected to squeeze free cash flow ($64.4 billion on a trailing 12-month basis at the end of first-quarter 2026). Alphabet announced plans to raise approximately $84.75 billion through equity offerings to fund AI infrastructure spending that dilutes existing shareholders’ stakes.
GOOGL shares have outperformed Amazon and Microsoft but lag Apple over the past 30 days. Shares of Apple have returned 0.5% while Amazon and Microsoft have dropped 7.1% and 7%, respectively.
GOOGL Stock’s Price Performance
Image Source: Zacks Investment Research
Alphabet Shares Are Overvalued
GOOGL shares are overvalued, as suggested by a Value Score of D. The Alphabet stock is trading at a forward 12-month price/earnings (P/E) of 25.73X compared with the Zacks Internet Services Industry’s 24.98X.
Alphabet shares are trading at a premium compared with Microsoft, shares of which are trading at a P/E multiple of 20.5. However, GOOGL shares are trading at a lower multiple compared with Apple’s 32.11 and Amazon’s 26.2.
GOOGL Stock’s Valuation
Image Source: Zacks Investment Research
AI Push Boosts GOOGL’s Search & Cloud Business
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. Google is leveraging its massive user base to accelerate AI adoption. Gemini now powers all 13 Google products with over one billion users, while the Gemini app itself has surpassed 900 million monthly users. AI-powered features are being embedded across Search, YouTube, Chrome, Workspace and Google One subscriptions.
Alphabet sees AI as creating an “expansionary moment” for Search rather than disrupting it. AI Overviews now serve more than 2.5 billion monthly users, while AI Mode has already surpassed 1 billion monthly users within a year of launch. Management noted that AI-powered features are increasing engagement and driving search queries to all-time highs, similar to the growth acceleration created by the transition to mobile. AI also improves advertising effectiveness through a better understanding of user intent, allowing GOOGL to monetize longer and more complex searches while improving advertiser ROI.
Google Cloud is one of the clearest beneficiaries of AI adoption. Management emphasized that Enterprise AI Solutions have become the Cloud’s primary growth driver, with 75% of Cloud customers now using Google’s AI products. The company’s ability to provide infrastructure, models, security, and productivity tools through a single integrated platform positions Google Cloud to capture growing enterprise AI spending.
AI creates multiple monetization pathways for Alphabet beyond traditional search advertising through AI-powered advertising tools such as AI Max and Performance Max. Other options include consumer AI subscriptions through Google One and Gemini plans, Enterprise AI infrastructure and model services, agentic commerce initiatives such as Universal Cart, as well as AI-driven productivity and developer platforms like Antigravity. Management believes these opportunities span ads, subscriptions, cloud services, infrastructure, and emerging AI applications, creating several avenues for long-term revenue growth.
2026 Earnings Estimate Revisions Rise for GOOGL Stock
The Zacks Consensus Estimate for 2026 earnings is pegged at $14.30 per share, up by a penny over the past 30 days, indicating 32.3% year-over-year growth. The consensus mark for 2026 revenues is pegged at $422.05 billion, indicating 23.1% year-over-year growth.
The consensus mark for second-quarter 2026 earnings is pegged at $2.86 per share, unchanged over the past 30 days, suggesting 23.8% growth year over year. The Zacks Consensus Estimate for second-quarter 2026 revenues is pegged at $101 billion, implying 23.6% year-over-year growth.
Conclusion
Alphabet is benefiting from accelerated growth across AI infrastructure, Google Cloud and Search. However, stiff competition in cloud computing and higher capex have been concerning. GOOGL’s stretched valuation is a concern.
View the Zacks #1 Rank List
Image: Bigstock
Alphabet Drops 6% in a Month: Buy, Sell, or Hold the GOOGL Stock?
Key Takeaways
Alphabet (GOOGL - Free Report) shares have dropped 6.3% in a month, underperforming the broader Zacks Computer & Technology sector’s return of 3.6%. GOOGL’s huge capital expenditure — between $180 billion and $190 billion — roughly double 2025’s level, with spending expected to rise further in 2027, has spooked investors. The company is suffering from capacity constraints despite the improving pace of server deployments and data center construction. This, along with higher depreciation expenses and related data center operations costs, including energy, is expected to hurt profitability. The Wiz acquisition is expected to have a low single-digit percentage point headwind to Google Cloud's operating margin for the remainder of 2026.
However, GOOGL’s prospects are benefiting from its growing AI-powered Search capabilities and significant investments in Cloud computing. So, what should investors do with GOOGL shares?
GOOGL Suffers From Stiff Competition & Higher Capex
Alphabet is facing stiff competition in the cloud computing space from Microsoft (MSFT - Free Report) and Amazon (AMZN - Free Report) . According to Synergy Research Group’s first-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%, 21% and 14%, respectively. In the search domain, Google continues to dominate with a roughly 90.39% share, followed by Microsoft’s Bing, with a 5.03% share, per the latest data from StatCounter. In the consumer technology market, Alphabet continues to face stiff competition from Apple (AAPL - Free Report) .
The question that investors are asking is whether the returns from AI investments will justify the enormous upfront costs. Most of GOOGL’s capital expenditure is marked for building AI and cloud infrastructure, including data centers, chips and servers for Gemini and cloud growth. Although Alphabet generates considerable cash flow ($174.4 billion on a trailing 12-month basis at the end of first-quarter 2026), the steep increase in capital expenditure is expected to squeeze free cash flow ($64.4 billion on a trailing 12-month basis at the end of first-quarter 2026). Alphabet announced plans to raise approximately $84.75 billion through equity offerings to fund AI infrastructure spending that dilutes existing shareholders’ stakes.
GOOGL shares have outperformed Amazon and Microsoft but lag Apple over the past 30 days. Shares of Apple have returned 0.5% while Amazon and Microsoft have dropped 7.1% and 7%, respectively.
GOOGL Stock’s Price Performance
Image Source: Zacks Investment Research
Alphabet Shares Are Overvalued
GOOGL shares are overvalued, as suggested by a Value Score of D. The Alphabet stock is trading at a forward 12-month price/earnings (P/E) of 25.73X compared with the Zacks Internet Services Industry’s 24.98X.
Alphabet shares are trading at a premium compared with Microsoft, shares of which are trading at a P/E multiple of 20.5. However, GOOGL shares are trading at a lower multiple compared with Apple’s 32.11 and Amazon’s 26.2.
GOOGL Stock’s Valuation
Image Source: Zacks Investment Research
AI Push Boosts GOOGL’s Search & Cloud Business
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. Google is leveraging its massive user base to accelerate AI adoption. Gemini now powers all 13 Google products with over one billion users, while the Gemini app itself has surpassed 900 million monthly users. AI-powered features are being embedded across Search, YouTube, Chrome, Workspace and Google One subscriptions.
Alphabet sees AI as creating an “expansionary moment” for Search rather than disrupting it. AI Overviews now serve more than 2.5 billion monthly users, while AI Mode has already surpassed 1 billion monthly users within a year of launch. Management noted that AI-powered features are increasing engagement and driving search queries to all-time highs, similar to the growth acceleration created by the transition to mobile. AI also improves advertising effectiveness through a better understanding of user intent, allowing GOOGL to monetize longer and more complex searches while improving advertiser ROI.
Google Cloud is one of the clearest beneficiaries of AI adoption. Management emphasized that Enterprise AI Solutions have become the Cloud’s primary growth driver, with 75% of Cloud customers now using Google’s AI products. The company’s ability to provide infrastructure, models, security, and productivity tools through a single integrated platform positions Google Cloud to capture growing enterprise AI spending.
AI creates multiple monetization pathways for Alphabet beyond traditional search advertising through AI-powered advertising tools such as AI Max and Performance Max. Other options include consumer AI subscriptions through Google One and Gemini plans, Enterprise AI infrastructure and model services, agentic commerce initiatives such as Universal Cart, as well as AI-driven productivity and developer platforms like Antigravity. Management believes these opportunities span ads, subscriptions, cloud services, infrastructure, and emerging AI applications, creating several avenues for long-term revenue growth.
2026 Earnings Estimate Revisions Rise for GOOGL Stock
The Zacks Consensus Estimate for 2026 earnings is pegged at $14.30 per share, up by a penny over the past 30 days, indicating 32.3% year-over-year growth. The consensus mark for 2026 revenues is pegged at $422.05 billion, indicating 23.1% year-over-year growth.
Alphabet Inc. Price and Consensus
Alphabet Inc. price-consensus-chart | Alphabet Inc. Quote
The consensus mark for second-quarter 2026 earnings is pegged at $2.86 per share, unchanged over the past 30 days, suggesting 23.8% growth year over year. The Zacks Consensus Estimate for second-quarter 2026 revenues is pegged at $101 billion, implying 23.6% year-over-year growth.
Conclusion
Alphabet is benefiting from accelerated growth across AI infrastructure, Google Cloud and Search. However, stiff competition in cloud computing and higher capex have been concerning. GOOGL’s stretched valuation is a concern.
Alphabet currently has a Zacks Rank #3 (Hold), suggesting that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.