Alphabet investors have had little to celebrate over the past month.
Google parent Alphabet has fallen more than 10%, significantly underperforming the S&P 500, which has gained about 1% over the same period.
The decline has come despite a strong second-quarter performance and a series of developments that could strengthen the company’s position in artificial intelligence.
That makes the obvious question for investors: is the selloff creating a buying opportunity?
There is a credible case for buying Alphabet at current levels.
The company remains dominant in search, has a rapidly expanding cloud business, owns some of the industry’s most important AI infrastructure and is moving quickly to improve Gemini.
But there are also reasons not to rush.
Alphabet is spending unprecedented sums to compete in AI, while investors remain concerned about the durability of its search business and whether recent earnings provide an accurate picture of its underlying valuation.
The latest developments suggest the stock is becoming more interesting, but not necessarily risk-free.
Why has GOOG slumped?
The stock has underperformed primarily due to investor concens of Alphabet spending too much, too quickly.
The company raised its 2026 capital expenditure budget to between $195 billion and $205 billion during its second-quarter earnings call.
That spending is necessary if Alphabet wants to compete with the largest AI companies.
But investors are increasingly demanding evidence that the money will generate attractive returns.
It did not help that Alphabet reported negative free cash flow of about $5.9 billion in the quarter, compared with roughly $5.3 billion of positive free cash flow a year earlier.
The stock slumped after earnings despite beating Wall Street estimates.
The other major risk is Google’s traditional search business.
Alphabet still derives a huge portion of its economic value from search advertising.
The emergence of AI chatbots has therefore created a direct threat to the company’s most important business.
Eric Sheridan of Goldman Sachs Research identified slowing search growth as one of the two main issues weighing on Alphabet shares.
“There are two debates that are weighing on Alphabet shares,” Eric Sheridan, business unit leader of the TMT Group within Goldman Sachs Research, said on Yahoo Finance’s Opening Bid.
“One is that search slowed down a little bit more than investors expected [in the second quarter].”
The second concern relates to talent departures and Google’s AI strategy.
“The second bigger theme that’s weighed on it is there’s been brain drain,” Sheridan continued.
“There’s been departures from folks at Gemini, Google, DeepMind, Google broadly, and Gemini’s next-generation model has been delayed — the 3.5 Pro. And now they’re talking about Gemini four. We’ve seen this with other companies. Meta went through it 12, 15 months ago when they ripped up the playbook and started spending billions.”
The important question is whether AI eventually destroys some of Google’s search economics or instead makes Search more valuable by improving the quality and relevance of results.
So far, that question remains unresolved.
Google starts September with AI momentum
Alphabet has started September by trying to regain momentum in the AI race.
The company launched Gemini 3.8 Flash on Wednesday, its third Flash model in six weeks, alongside a cybersecurity model aimed at government and enterprise customers.
The new Gemini model is particularly focused on coding, reasoning and agentic tasks.
Those are increasingly important areas as AI companies attempt to turn technological improvements into enterprise revenue.
Flash models are also strategically important because they can be faster and cheaper to operate than Google’s largest frontier systems.
Google’s rapid model rollout suggests that management is not standing still despite concerns about losing ground to OpenAI and Anthropic.
However, investors should not confuse continued progress with clear AI leadership.
“From a product perspective this model seems to keep Google in the race, but probably won’t change the fact they are a distant third in the enterprise market,” said Gil Luria, an analyst at D.A. Davidson, in an interview, CNBC reported.
That is probably the most important caveat to the AI bull case.
Alphabet does not necessarily need Gemini to become the dominant AI model for the investment thesis to work.
It needs AI to reinforce Google’s broader ecosystem, including Cloud, Search, advertising and enterprise software.
Alphabet also received some regulatory relief
Investors also received good news on the regulatory front.
A US federal judge on Wednesday rejected the Justice Department’s request to force Google to sell its AdX advertising exchange.
The decision is important because a forced divestiture would have created additional uncertainty around Google’s advertising operations.
Instead, the court opted for behavioral remedies.
AdX itself represents a relatively small portion of Alphabet’s overall business, but the ruling removes one potential source of disruption.
It is therefore a modest fundamental positive and potentially a more important sentiment positive.
Google stock did not react much, however, and closed higher by 0.6% on Wednesday, before gaining about 0.7% during premarket trade on Thursday.
Berkshire’s bet strengthens the long-term case
One of the more notable developments for Alphabet investors is Berkshire Hathaway’s growing position in the company.
Berkshire Hathaway CEO Greg Abel told CNBC on Wednesday that Alphabet’s AI position was a significant factor behind the investment.
“We have a lot of visibility from within our companies as to how we’re using AI, what type of benefits it’s delivering, so that brought incremental interest, and then we saw Google as a significant player,” he told the channel.
Berkshire added about $17 billion of Alphabet shares in the second quarter, making it the conglomerate’s third-largest equity holding.
Its most recent filing showed roughly 106 million Alphabet Class A and Class C shares, worth around $36.6 billion based on the figures supplied.
That is not a reason by itself to buy the stock.
Berkshire can be wrong, and its investment horizon is much longer than that of many public-market investors.
Still, the decision is significant because Berkshire’s investment is based partly on observing AI’s impact across its portfolio companies.
It provides an outside vote of confidence that Alphabet’s AI capabilities can translate into practical business benefits.
Google Cloud remains a big opportunity
Google Cloud gives Alphabet a direct route to monetize the massive infrastructure spending required by companies adopting AI.
Wolfe Research expects Google Cloud Platform revenue to grow 125% year over year in the third quarter, compared with the Street consensus of 87%.
If that forecast proves accurate, Cloud could become one of the most important drivers of Alphabet’s earnings growth.
The company’s proprietary tensor processing units also provide another potential source of upside.
Citizens JMP expects TPU sales to reach about $3 billion in 2026 and rise to $25 billion in 2027.
That matters because Alphabet is currently spending enormous amounts of money on AI infrastructure.
If its own chips can eventually generate significant revenue or lower the cost of running its AI services, some of that investment could translate into higher margins and earnings.
This is a longer-term argument, however.
Investors buying Alphabet today are effectively paying for some of that future potential before it is fully reflected in earnings.
Is Alphabet stock cheap enough to buy?
Recently, Rosenblatt Securities analyst Scott Devitt initiated coverage of GOOG with a “Buy” rating and a $410 price target.
Devitt said that “concerns around AI chatbots threatening Google’s search business have largely played out.”
The analyst also remains positive on Alphabet’s cloud business.
Valuation is where the bull and bear cases collide.
Alphabet’s reported trailing P/E is around 17 times, while its forward P/E is roughly 25 times based on current market data.
The lower headline multiple makes the stock appear inexpensive compared with many high-growth technology companies.
But investors need to be careful about relying on the headline P/E.
Mohit Oberoi of Barchart argues that Alphabet’s GAAP earnings have been boosted by substantial gains in its investment portfolio.
Alphabet reported $99 billion in “other income” in the second quarter, predominantly reflecting gains on investments including Anthropic and SpaceX, he said.
On adjusted earnings, Alphabet’s forward P/E is closer to 25 times.
That makes the stock less obviously cheap.
The distinction matters because investors buying Alphabet are buying its future operating earnings, not simply gains from investments held on its balance sheet.
Wall Street also remains broadly bullish. Of 54 analysts tracked by Barchart, 47 rate Alphabet a “Strong Buy” and three a “Moderate Buy.”
The mean target price is $432.25, implying more than 31% upside from current levels based on the figures provided.
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