Alphabet (GOOGL) stock dropped significantly last week after reaching $370 on July 15th. This decline happened just before the company released its earnings report, which is expected to reveal how well it’s competing in the artificial intelligence field. The stock slide followed news that Gemini 3.5 Pro, Alphabet’s leading AI model, is experiencing delays.
This highlights a significant change; for the first time in about two decades, Alphabet is investing heavily in artificial intelligence, which they’ll be discussing and needing to justify this Wednesday.
Why Google Stock Just Dropped
Alphabet’s stock (GOOGL) dropped over 9% on July 16th and 17th following news of a delay. The significant amount of trading suggests that major investors, not just individual traders, were selling off their shares.
The news comes at a difficult time. Alphabet is releasing its second-quarter earnings on July 22nd, and recent challenges with its Gemini AI model mean those results will be under particularly close scrutiny.
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From my analysis, the recent market downturn really centers around one key concern: Google’s massive investment in AI. Investors are understandably worried about their planned $190 billion spend this year and whether they’ll actually see a return on that investment.
The $190 Billion Bet It Can No Longer Self-Fund
The budget is key to understanding Alphabet’s plans. They expect to spend between $180 and $190 billion in 2026 – about twice the $91 billion they spent last year – and anticipate even greater spending in 2027.
After several years of comfortably covering its expenses, the company’s current funds aren’t enough to pay the bills. Cash flow decreased by about half in the first three months of the year, despite significantly increasing investments in capital projects.
So Alphabet did something it had avoided for roughly 20 years.
Major tech companies are facing financial strain due to massive investments in artificial intelligence, and some argue their attempts to hide this are unlawful. Google, Amazon, Microsoft, and Meta are collectively spending an astounding $700 billion this year on AI infrastructure – a sum that consumes 94% of their operating cash flow. These extremely wealthy companies…
— Ricardo (@Ric_RTP) June 6, 2026
The company raised $80 billion by selling new stock, its largest stock offering in around twenty years. This reversed a long trend of buying back its own shares, and Warren Buffett’s Berkshire Hathaway invested $10 billion in the offering.
We announced on Monday that Alphabet is selling more shares of stock – this is part of our long-term plan to invest in artificial intelligence and meet growing demand from businesses and individuals. The sale went very well, and we successfully raised a significant amount of capital…
— Sundar Pichai (@sundarpichai) June 3, 2026
That reversal is why Wall Street now scrutinizes every dollar of this spending.
Depreciation Is the Real Test
Most people don’t realize this: while computer chips and data centers are initially expensive investments, their costs are spread out over five to six years. This means that even after the money is spent, these expenses continue to reduce profits gradually over time.
As a crypto investor, I often think about depreciation when looking at things like staking rewards or even just holding assets. It’s kind of like when I bought a delivery van for my business – I paid the full price upfront, but I didn’t expense it all immediately. Instead, I accounted for its cost gradually over several years as it wore out with use. That way, the expense matched how much value I actually *got* from it each year.
This changes the main issue. Instead of focusing on how much Google is spending, the important thing now is whether the income from AI increases at a rate that outpaces the loss of value from that spending.
As a researcher, I’ve been looking closely at current market conditions, and what I’m seeing suggests we might be in the midst of a massive earnings bubble – potentially the largest ever. In a recent discussion with Adam Taggart, we explored why this might be happening, and whether we’re witnessing one of the biggest stock market bubbles in history. I’d really appreciate it if you could like, bookmark, and share this information with other investors who might find it valuable.
— Thoughtful Money® (@thoughtfulmoney) July 15, 2026
As an analyst, I’m watching Google Cloud closely, and the latest numbers are really impressive. Last quarter, it saw a huge 63% growth, bringing in $20 billion with record-high profitability. Early indications suggest we can expect around $22 billion in revenue this quarter, which would be another significant step forward.
Based on current trends, it looks like our revenue might actually start exceeding our losses from asset depreciation – which would be a really positive sign. However, there’s still some concern that the recent surge in AI-related income could be temporary and unsustainable, casting a bit of a shadow over the entire industry.
TPUs Are the Swing Factor
Google’s parent company, Alphabet, might gain a significant advantage with its own computer chips. These specialized chips, called Tensor Processing Units (TPUs), are designed to compete with those made by Nvidia. By creating their own chips, Alphabet can save money and is now also selling them to other companies.
The company has invested heavily in Tensor Processing Units (TPUs) through both substantial financial guarantees and a $5 billion partnership with Blackstone. According to Citadel Securities, using TPUs makes some of their operations around 30% less expensive and as much as four times quicker.
The Wall Street Journal has a striking term for NVIDIA’s strong position in the AI cloud market: “Jensen jail.” Apparently, some newer cloud companies are concerned that if they don’t continue purchasing NVIDIA’s complete technology package, they might not get access to future GPU supplies. It’s not just about the chips themselves; it’s also about securing allocation of those chips, the networking infrastructure, NVIDIA’s CUDA programming platform, and even financing options.
— Wall St Engine (@wallstengine) June 19, 2026
Despite some optimism, questions linger about the popularity of TPUs beyond Google itself. In early July, cloud provider Nebius reported that around 99% of their customers’ requests still focus on Nvidia products, suggesting limited interest in TPUs from other businesses.
Nebius is poised to become the first ‘neocloud’ company valued at over $1 trillion, and here’s the reasoning behind that prediction. As Dylan Patel points out, Jensen Huang is strongly opposed to a future where major cloud providers – like Microsoft, Amazon, and Google – dominate the entire market and hold all the power. He doesn’t want a world where only those companies are developing…
— Milk Road AI (@MilkRoadAI) June 30, 2026
What Wall Street Expects on Wednesday
Even though the price has fallen, experts remain optimistic about its future. Most recommend buying it, and they predict it will reach around $438 on average.
Additionally, no analysts currently rate the stock as a ‘sell,’ and Wedbush just initiated coverage with a price target of $671 – the highest on Wall Street.
Major investors are on board with AI. Warren Buffett himself started Berkshire Hathaway’s investment in the field and continues to believe significant funds are being put into AI development, as demonstrated by his company’s support of Alphabet.
In addition to investments by Berkshire Hathaway, recent filings reveal that funds managed by Ken Fisher and Ray Dalio increased their holdings last quarter, while some other firms reduced theirs.
This quarter, financial experts are predicting strong results, with around $116.9 billion in revenue and earnings of $2.90 per share. Both figures represent an increase of over 20% compared to the same period last year.
Google (GOOGL) releases its earnings report after market close on Wednesday, and it’s a particularly important one given recent developments with AI model Kimi K3 and the current downturn in chip stocks. Investors will be closely watching the growth of Google Cloud, how well the core Search business is holding up, and any news about capital expenditures and how Google plans to generate revenue from its Tensor Processing Units (TPUs).
— Investor’s Compass (@InvestorCompass) July 20, 2026
Surpassing these numbers, particularly in the cloud sector, would demonstrate that our investments are driving real progress. Failing to meet them, or needing to increase spending targets again, would reinforce existing concerns.
So Wednesday reveals whether Google’s $190 billion bet looks visionary or reckless.
2026-07-20 18:41