After hitting $370 on July 15, Alphabet (GOOGL) sold off sharply last week, days before an earnings report that could define its place in the AI race. The Google stock slide followed a report that Gemini 3.5 Pro, Alphabet’s most powerful AI model, is delayed.

It also spotlights a bigger shift, since Alphabet just broke a roughly 20-year habit to fund the AI build-out it must defend on Wednesday.

Why Google Stock Just Dropped

Alphabet (GOOGL) fell by more than 9% between July 16 and 17 after the delay was reported, amid heavy selling volume. That volume matters because it suggests large holders, not just regular retail traders, were cutting exposure.

The timing stings. Alphabet reports second-quarter results on July 22 after the close, and Alphabet’s Gemini setback has raised the bar for what those numbers must show.

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Yet the sell-off traces back to one bigger figure. Investors are nervous about the $190 billion Google now plans to spend on AI this year, and whether it will ever pay off.

The $190 Billion Bet It Can No Longer Self-Fund

That budget is the heart of the story. Alphabet’s 2026 capital spending guidance sits between $180 billion and $190 billion, roughly double last year’s $91 billion, with an even higher 2027 already flagged.

For the first time in years, its cash machine cannot cover the bill on its own. Free cash flow roughly halved in the first quarter, even as capital spending more than doubled from a year earlier.

So Alphabet did something it had avoided for roughly 20 years.

It launched an $80 billion equity raise, its first major stock sale in about two decades, that reversed years of buybacks, with Warren Buffett’s Berkshire Hathaway adding $10 billion.

That reversal is why Wall Street now scrutinizes every dollar of this spending.

Depreciation Is the Real Test

Here is the part that few readers see. Chips and data centers are capitalized and depreciated over five to six years, so today’s spending becomes a rising cost that slowly erodes profit, long after the cash leaves.

Think of it like buying a delivery van. The cash goes out all at once, but the cost is booked in small yearly slices as the van wears down.

That shifts the key question. It is no longer how much Google spends, but whether AI revenue grows faster than the depreciation that spending creates.

Google Cloud is where that answer shows up first. It grew 63% last quarter to $20 billion at a record margin, and some previews expect close to $22 billion this time.

If that pace holds, revenue may finally be outrunning depreciation, though AI revenue bubble fears still shadow the sector.

TPUs Are the Swing Factor

Alphabet’s own chips could tip the math. Its Tensor Processing Units (TPUs), custom AI chips built to rival Nvidia, let it avoid paying Nvidia’s rich margins and now pull in outside customers.

The company has backed TPU projects with billions in guarantees and a $5 billion venture with Blackstone. Citadel Securities says it runs some workloads about 30% cheaper and up to four times faster on TPUs.

Doubts remain, however. One cloud provider, Nebius, said in early July that roughly 99% of demand still points to Nvidia, arguing TPU interest is thin outside Google’s own orbit.

What Wall Street Expects on Wednesday

Despite the drop, analysts stay firmly bullish. The consensus rating is a Strong Buy with an average target near $438.

Plus, there are no Sell ratings on record, and Wedbush recently opened coverage at a Street high of $671.

Big money agrees. Buffett personally initiated Berkshire’s stake and still calls the AI spending race real money, a stance laid out in how Buffett backs Alphabet.

Beyond Berkshire, 13F filings show funds run by Ken Fisher and Ray Dalio added shares last quarter, though some rivals trimmed.

The numbers set the stakes. Analysts expect about $116.9 billion in revenue and $2.90 in earnings per share this quarter, both up more than 20% from a year earlier.

Beating those figures, especially on cloud, would show that the spending is converting into growth. Falling short, or raising the capex bar again, would harden the doubts.

So Wednesday reveals whether Google’s $190 billion bet looks visionary or reckless.

Source: BeInCrypto