GOOGL Slips 7% Amid Rising Capital Expenditure and Intensifying Competition

Alphabet's GOOGL shares have dropped by 7% over the past three months, trailing behind the broader Zacks Computer & Technology sector which declined by 2.8%. This decline is largely due to Alphabet's increased focus on building its AI infrastructure, leading to rising capital expenditure.

In the second quarter of 2026, Alphabet doubled its capital expenditure to $44.9 billion, resulting in negative free cash flow (FCF) of $5.855 billion. The company has also raised its 2026 capital expenditure guidance to a range of $195-$205 billion and expects significant investment increases again in 2027.

As a result of these increased costs, Alphabet's profits will likely be negatively impacted by higher depreciation, energy, and data-center operating costs, while FCF is expected to remain under pressure. The question remains: what return can Alphabet expect on its massive AI-related investments?

In addition to the risks associated with its AI infrastructure investments, Alphabet faces intense competition in cloud computing from Microsoft MSFT and Amazon AMZN, as well as OpenAI, Anthropic, Apple AAPL, and Meta.