Alphabet stock traded lower on Monday, in line with broader market weakness, as investors continued to assess the company’s aggressive artificial intelligence investment plans.
The parent company of Google and YouTube has delivered strong gains over the past year.
However, concerns about rising AI-related capital expenditures and broader questions about valuations across the sector have recently weighed on sentiment.
Alphabet has guided for capital expenditure of between $175 billion and $185 billion for the current year, significantly above the $91.4 billion it spent in 2025 and well ahead of consensus estimates of $115 billion.
The disclosure unsettled investors, contributing to a roughly 5% decline in the stock since the company reported fourth-quarter 2025 earnings a few weeks ago.
Over the past month, Alphabet shares have fallen around 4% and are little changed for the year, even as they remain up 75% over the past 12 months, outpacing the 14% gain in the S&P 500 over the same period.
Wells Fargo upgrades GOOGL stock
Despite near-term pressure, Wells Fargo expressed confidence in Alphabet’s long-term positioning.
Analyst Ken Gawrelski upgraded the stock to Overweight from Equal Weight and raised his price target to $387 from $354, implying potential upside of more than 22% from Friday’s close.
Gawrelski said Alphabet possesses the “3 key traits of [an] AI winner”: data, distribution, and computing capacity.
“GOOGL has all the pieces necessary to be an AI winner, with an industry-leading capacity position to support internal efforts (Search, Gemini) and monetise externally through GCP, broad distribution network, and vast consumer data,” he wrote.
The analyst pointed to Alphabet’s plan to expand AI compute capacity to 35 gigawatts by 2028 from 15 gigawatts at the end of last year.
He noted that “increasingly it appears hyperscaler ambitions are bounded by compute capacity” and added, “As this market construct persists medium term, [we] see Google gaining competitive advantage as it widens capacity leadership vs. peers.”
Gawrelski also projected that Gemini’s average recurring revenue could triple to $12 billion by the end of 2027 from $4 billion at the end of last year.
According to LSEG data, 52 of 61 analysts covering the company rate it a Buy or Strong Buy, with the average price target implying nearly 14% upside.
Burry questions AI spending sustainability
Scepticism around hyperscaler spending resurfaced after investor Michael Burry questioned the sustainability of AI data centre investments in a post on X on February 21.
Burry referenced major technology companies, including Oracle, Alphabet, Meta Platforms, Microsoft, Amazon, and Nvidia, asking: “When does the spending for AI data center buildout actually end?”
The post reignited debate about the scale of capital expenditures across the sector.
Based on company guidance, the four largest hyperscalers—Amazon, Alphabet, Meta, and Microsoft—are projected to spend between $650 billion and $700 billion in 2026, a more than 70% increase from $381 billion in 2025.
Burry argued that the investments are consuming cash flow and prompting companies to borrow more, even with strong balance sheets.
He said firms appear to view the spending as urgent and scalable, but questioned how long it can continue.
He also warned that companies such as Nvidia and Meta could face pressure from rising costs and depreciation, potentially leading to earnings restatements or profit declines.
Burry estimated $176 billion in understated depreciation across hyperscalers between 2026 and 2028.
According to his projections, Amazon could generate negative free cash flow in 2026, ranging from negative $17 billion to negative $28 billion.
He estimated that Alphabet’s free cash flow could decline 90%, from $73.3 billion to $8.2 billion, as AI-related investments intensify.
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