Key Takeaways
- Alphabet stock is up 21% in the past year but 22% below its May high, after the company began paying for its AI buildout with new stock and a much bigger capex budget.
- The selloff looks overdone: the stock trades right at its five-year average forward P/E, and analysts expect normalized EPS to grow about 24% a year through 2028.
- Second-quarter revenue rose 24% and Google Cloud grew 82%, but free cash flow turned negative for the first time since Alphabet went public.
- Third-quarter results come out after the close on Wednesday, Oct. 28, and will show whether Cloud’s growth can justify an even bigger spending bill in 2027.
Alphabet (GOOG) stock is up 21% in the past year (through Monday’s close), but it’s flat for 2026 and sits 22% below its May high.
That split tells the story. The whole one-year gain came before January: the stock ended 2025 at about where it trades now. This year, it rallied to a May high on Cloud’s growth, then gave all of it back once Alphabet started paying for its AI buildout. With third-quarter results due after the close on Wednesday, Oct. 28, I think the selloff has gone too far.
Gemini 3 and Cloud Did the Lifting
The run started when Google released Gemini 3 on Nov. 18, 2025, and the stock rose 3% the next day. Days later, The Information reported that Meta Platforms (META) was in talks to spend billions on Google’s TPU chips.
The first-quarter report on April 29 added the next leg. Sales grew 22% to $109.9 billion, Cloud revenue jumped 63%, and Cloud’s backlog nearly doubled in three months, to more than $460 billion. (That was also the first quarter its backlog counted contracts of a year or less, so part of the jump comes from the new definition.) Shares jumped 10% the next day and peaked in May.
Then Alphabet’s Bill Came Due
In June, Alphabet raised $49.6 billion from new stock, including $10 billion from Berkshire Hathaway (BRK.B), and set up a program to sell up to $40 billion more, mainly to cover taxes on employee stock grants. It bought back $28.3 billion of stock in the first half of 2025, and none in the first half of 2026.
In its July 22 report, revenue rose 24% to $119.8 billion, and Cloud growth sped up to 82%. But Alphabet raised its 2026 capex guide to $195 billion to $205 billion, and free cash flow came in at negative $5.9 billion, its first negative quarter as a public company. The stock fell 7% the next day.
Capital spending had already nearly quadrupled from 2021 to 2025.
This year’s guide is more than double 2025’s $91.5 billion.
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October Piled On
On Oct. 15, Reuters reported that some Anthropic investors were discussing a lower IPO valuation, and Scotiabank estimates Anthropic accounts for about 22% of Google Cloud’s backlog. On Oct. 20, CEO Sundar Pichai said Cloud is giving up some revenue so DeepMind gets computing power first, calling its needs “non-negotiable.” A day later, Meta nudged up the low end of its own 2026 capex range, another sign the industry’s spending isn’t slowing.
What Alphabet Has to Show on Wednesday
Analysts expect third-quarter revenue near $128 billion, up around 25%. The bigger tells are Cloud growth against last quarter’s 82% and any early word on 2027 capex, with 2027 free cash flow already expected at around negative $37 billion.
That bill is easier to swallow if Google Cloud CEO Thomas Kurian is right. At Goldman Sachs’ Communacopia + Technology Conference on Sept. 8, he said Alphabet’s AI servers pay for themselves in under two years in aggregate, and its own chips in about half that.
Why I’d Add to Alphabet Here
Analysts still expect normalized EPS to climb from $11.89 in 2026 to $18.16 in 2028, about 24% a year.
And the stock isn’t priced for anything heroic. At Monday’s close, Alphabet traded at about 23x forward earnings, right at its five-year average and well below the 33x it hit on April 30. Paying 23x for earnings growing about 24% a year is a fair price for a company whose Cloud operating income more than tripled to $8.8 billion last quarter.
The bear case is real, but it’s narrower than the selloff suggests. The $49.6 billion raise is a little over 1% of Alphabet’s market value. The deeper problem is cash: analysts don’t expect free cash flow to turn positive again until 2028. The average price target of $422 sits about a third above Monday’s close.
Wednesday is where that call gets tested. Cloud growth holding near 80% would support it. A sharp slowdown alongside another open-ended capex raise would push the payoff further out, and I’d wait for the next quarter before adding more.
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Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
