Skip to Main ContentSkip to Search
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.
The 1 Number That Explains Why Alphabet Stock Is Tanking
By Kit Norton
and Janet H. Cho
Updated July 23, 2026, 4:55 pm EDT / Original July 23, 2026, 11:04 am EDT
Share
Add us on Google
Choose Barron's as a preferred source of financial news
Resize
Reprints
In this article
Key Points
About This Summary
-
Alphabet’s second-quarter free cash flow was negative $5.9 billion, the first time it fell below zero in the company’s history.
-
Alphabet shares fell 7.1% on Thursday after the company raised its artificial intelligence capital spending forecast.
-
In June, Alphabet announced an $85 billion offering to fund its 2026 and 2027 artificial intelligence spending plans.
GOOGL\ \ -7.13% saw free cash flow turn negative in the second quarter for the first time in the Google parent’s history as massive artificial-intelligence spending outpaced cash generation.
That’s unsettling some investors because it highlights one of Wall Street’s biggest debates about hyperscalers: Is the AI spending worth it if Big Tech companies begin outspending their operating cash flows to fund those ambitions?
On Thursday, the answer was no.
The stock closed down 7.1% to $317.69, making Alphabet the worst performer in the Dow Jones Industrial Average
DJIA\ \ -0.97% on Thursday.
Advertisement - Scroll to Continue
Alphabet lost $293.8 billion in market value on Thursday, its largest one-day market cap loss ever, and the 6th largest one-day market cap loss for any U.S. company on record. That lowered the company’s market value to $3.89 trillion, its first close below the $4 trillion market cap threshold since April 13, according to Dow Jones Market Data.
Wall Street is clearly caught between its bullish view of AI and concerns about the financial cost. Alphabet’s free cash flow was negative $5.9 billion in the quarter—the first time it has fallen below zero, according to LSEG
LSEG\ \ -1.31% data.
“GOOGL is exhibit A for why you need to be cautious on hyperscalers,” Melius Research analyst Ben Reitzes wrote Thursday.
Advertisement - Scroll to Continue
“Even as their clouds crush estimates, margins are under incremental pressure. Unfortunately, these guys can’t buy back stock and will continue to issue debt and equity even as some huge IPO’s are looming,” Reitzes added.
Newsletter Sign-up
Review & Preview
Every weekday evening we highlight the consequential market news of the day and explain what's likely to matter tomorrow.
Preview
Subscribe
The analyst sees free cash flow turning negative in 2027 as Alphabet raised its 2026 AI spending guidance by $15 billion to between $195 billion and $205 billion, with expectations that spending will increase significantly in 2027.
However, other firms remain bullish and view the share price dip as a chance to buy Alphabet stock at lower levels.
JPM\ \ +0.49% analyst Doug Anmuth on Thursday lowered his Alphabet price target to $420 from $460 but maintained his Overweight rating and wrote that the firm “would be buyers of Google shares on the pullback.”
“Google is realizing accelerated delivery of compute capacity in the form of servers and data centers to service strong customer demand,” Anmuth wrote. “We continue to believe Google is showing returns on AI spending, with its differentiated full-stack positioning evident as it monetizes across cloud, search, subscriptions, and other parts of the business.”
Roth Capital Partners analyst Rohit Kulkarni echoed this sentiment, writing Thursday that with shares under pressure from the capital spending increase, the firm would “buy on weakness” as revenue estimates continue to rise.
Advertisement - Scroll to Continue
However, at the same time, Kulkarni conceded that he is “increasingly worried” about the long-term structural capital requirements to “keep Google winning” the AI race.
The negative free cash flow in the second quarter comes as Alphabet announced in June an $85 billion offering to fund its 2026 and 2027 AI spending plans, underscoring how Big Tech is tapping both debt and equity markets to fund capital expenditures.
The bullish view is that Alphabet won’t need to do that again, but whether AI investment ultimately moderates remains an open question as companies continue ramping spending.
“While spend continues to ramp, management’s tone about the multitude of GenAI opportunities across enterprise and consumer and the fact that they are more bullish now than one year ago about the opportunities ahead (combined with their disciplined budgeting) speaks to the still under-appreciated GOOGL forward growth in years to come,” Morgan Stanley
MS\ \ -1.52% analyst Brian Nowak wrote Thursday.
Write to Kit Norton at kit.norton@barrons.comExternal link
Copyright ©2026Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Chart of the Week: Why Wheaton Precious Metals Stock Looks Poised for a Rebound \
\
0·6 hours ago\
\
When AI CapEx Eats Cash: Is Alphabet’s Huge Bet Building a Moat or Sinking Margins?
Share
Resize
Reprints
In this article
Alphabet reported blowout earnings results late Wednesday, but the stock is dropping after the search giant again raised its forecast for capital expenditures.
Copyright ©2026 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Continue reading this article with a Barron’s subscription
Read Original at Barron's →