TradingKey - Alphabet's stock (NASDAQ: GOOGL, GOOG) fell 0.52% to $342 on Wednesday, continuing a downward trend from the previous day. The stock has a decent way to go for the year, and sits approximately 21 points above its 200-day EMA at $323.34. Yet, with the recent decline, investors are wondering if this is just a profit-taking move following a robust multi-week run or if it's an early indication of the AI-bet behind Alphabet's recent re-rating.
Capex Guidance Keeps Climbing
The most significant problem for investors at the moment is spending. Alphabet revised up its full-year 2026 capital expenditure outlook to $195 billion-$205 billion, from the previous range of $180 billion-$190 billion. The company has been investing heavily in its data centers and custom chips as AI demand grows.
The Q2 capex came at $44.9B, adding to the negative free cash flow of about $5.9B in the quarter. The spending rate is becoming a worry for investors as the cost of depreciation and interest expenses may be eroding margins amid continued demand for AI infrastructure.
Alphabet Just Raised $22.93 Billion in New Debt
Alphabet also made a big financing move in early August, as it closed a $22.93 billion senior unsecured bond issue with a range of maturities from 2028 to 2066. The transaction follows a $18 billion equity offering earlier this year, and is paired with a $40 billion ATM share program.
The capex is also at a record high, and the decision to pursue more leverage and possible dilution of shareholders has led institutional investors to consider the longer-term opportunity Alphabet believes exists in the field of AI infrastructure.
Google Cloud Is Doing the Heavy Lifting
Google Cloud is the best part of the bull market. Q2 revenue totaled $119.8 billion, a 24% increase from the same period the previous year, and Google Cloud revenue grew by 82% to $24.8 billion.
Cloud operating income more than tripled to $8.8 billion, with margins increasing from 20.7% to 35.6%. Backlog also increased by more than $50 billion from the previous quarter to a record $514 billion. That brought the total over half a trillion dollars for the first time.
Management anticipates that over the next 24 months, approximately 50% of that backlog will become recognized revenue. Search is also on a positive trajectory. Revenue rose 17% to $63.3 billion, suggesting that AI Overviews and Gemini integration have not hurt Alphabet’s core advertising business as much as some investors feared.
DeepMind Leadership Reshuffle
In addition, Alphabet has restructured its AI research team. Demis Hassabis has taken on a new role as chief scientist and the chair of Google DeepMind, making more of the company's high-level AI research under the stewardship of a scientist.
Kavukcuoglu has also joined the DeepMind team as an active operator, with the Gemini roadmap remaining the focus for Alphabet's strategy to challenge OpenAI and Anthropic.
The loss of longtime chief scientist Jeff Dean earlier this year also raises questions for some investors, particularly regarding talent retention. Alphabet's new structure aims to boost focus and execution in the AI race.
Pixel 11 Launch Adds a Hardware Challenge
Google unveiled its Pixel 11 lineup this week, but the response has been relatively muted. Last year there was a 16GB of RAM in all the models while this year the base Pro models come with 12GB of RAM and the price has risen by about $100 throughout the range.
The changes come as a global memory shortage puts additional pressure on smartphone margins. AI data centers are consuming large amounts of HBM and DRAM, pushing up memory costs. According to TrendForce, mobile memory contract prices rose by 78%-83% QoQ in Q2.
Alphabet rose slightly at the open of the day on Wednesday, but then turned back into negative territory, trading around a 0.2% loss. However, there's no clear evidence that the Pixel 11 reception was to blame.
Regulatory and Legal Pressure Builds
Another issue for Alphabet is regulatory concerns. In Europe, a group of almost 300 French publishers filed an antitrust lawsuit against Google regarding the AI Overviews, claiming the feature is diverting traffic away from news sites and violating earlier commitments.
U.S. lawsuits against Google, Meta, TikTok and Snap for alleged youth social-media addiction have advanced in federal court following a judge's ruling against their motion to dismiss.
In addition, Google will be meeting with White House officials along with Meta, Anthropic, and OpenAI to discuss voluntary AI safety testing. This is not a catalyst for an immediate stock price move, but it is an additional bit of “headline risk” as Alphabet is already under broader pressure on its advertising business and competition.
The Bottom Line: Analyst Targets and What to Watch Next
The average price target set by analysts on Wall Street is $422.47, with estimates in the range of $330 to $475. The overall analyst outlook is still Buy.
Image source: tipranks
Estimates from the community are on average about $427.89, which represents an estimated 24% upside from current levels, according to Simply Wall St. That outlook is based on forecasts calling for $701.1 billion in revenue and $221.8 billion in earnings by 2029.
Technically, $340 is the critical price to focus on. If the stock breaks below it, it could leave it open to $336 and maybe even the low $330s. The 200-day EMA at $323.34 is even more significant. If it continues to drop below that point, the downtrend could become more significant than today's price action.
Alphabet Inc Price Chart - Source: Tradingview
On the upside, reclaiming the $348 pivot and breaking through the $351-$353 EMA cluster would strengthen the case for a recovery. Q3 commentary on Cloud backlog conversion, sales advances on TPUs in other regions and updates on European antitrust proceedings are the next significant catalysts.
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