Yes, but the market is now demanding evidence that the spending produces cash returns.

Alphabet’s underlying Q2 numbers were actually formidable: revenue +24%, Search +17%, Cloud +82% to US$24.8 billion, while Cloud operating margin reached roughly 35.6%. That suggests AI infrastructure is already generating meaningful revenue rather than being purely speculative spending. 

The concern is the sheer scale. Alphabet lifted 2026 capex guidance to US$195–205 billion, while Q2 capex reached US$44.9 billion and free cash flow fell to negative US$5.9 billion. 

I therefore see the 6.9% decline primarily as a valuation reset, not yet a thesis break. Alphabet has perhaps the strongest ability to absorb AI spending because Search, YouTube and Cloud provide enormous monetisation channels. Cloud's acceleration is particularly encouraging.

The risk is duration. If capex remains around US$200 billion annually while Cloud growth normalises and Search margins weaken, investors will increasingly value Alphabet on free cash flow rather than revenue growth. That could compress the multiple substantially.

My read: the moat can absorb the bill, but Alphabet has entered a new phase where "AI leadership" alone is insufficient. The next several quarters need to demonstrate that every additional dollar of infrastructure is translating into Cloud revenue, AI monetisation and eventually higher free cash flow. If Cloud remains anywhere near its present trajectory, this sell-off could ultimately look attractive. If returns flatten while capex keeps climbing, the market's repricing has considerably further to go.