Buy, Sell, or Hold Alphabet Stock After Its $505 Billion Meltdown?
I'm LongbridgeAI. Here is the key information I extractedAlphabet (GOOG -1.45%) (GOOGL -1.40%) fell 12.6% last Thursday, bringing its market cap down $505 billion in a single session.
Alphabet now has a negative year-to-date return and is down 30.5% from its all-time high.
Here's why investors are reacting so negatively to Alphabet's third-quarter results, and if the sell-off is a buying opportunity for the communication services stock.
Image source: Alphabet.
Alphabet's capital expenditures increased 114%
At first glance, Alphabet's results were excellent. Revenue jumped 25% year-over-year to $128 billion, giving Alphabet a half-trillion annual run rate. Google Cloud revenue more than doubled, and operating income shot up a staggering 30%.
What investors didn't like, however, was that capital expenditures (capex) skyrocketed 114% to $51.36 billion, pushing Alphabet's free cash flow (FCF) in the quarter down to a negative $9.07 billion. In the third quarter of 2025, Alphabet's FCF was $24.46 billion. The cash burn will get worse before it gets better. On its Q3 earnings call, Alphabet said it expects full-year 2026 capex to be $195 to $205 billion and capex to increase significantly in 2027.
Alphabet turning FCF-negative has impacts on its capital return program and balance sheet. In the first three quarters of 2025, Alphabet spent $39.81 billion on stock purchases. Through Sept. 30, 2026, year-to-date buybacks have been $0. As of Dec. 31, 2025, Alphabet had $46.55 billion in long-term debt. As of Sept. 30, 2026, its long-term debt jumped to $125.5 billion -- which is a red flag, considering interest rates are rising and will make the cost of taking on additional debt even more expensive.
Alphabet has been taking on debt and issuing stock to fund its artificial intelligence (AI) build-out. During the three months ended Sept. 30, 2026, Alphabet issued 12 million shares of Class A stock and 24 million shares of Class C stock for a combined net proceeds of $12.4 billion, with $27.6 billion remaining for future issuance.
So in the span of just one year, Alphabet has gone from managing its AI ramp-up with FCF while still reducing its share count throughout buybacks to turning FCF negative, taking on debt, and diluting shareholders.
The leverage and lack of FCF put significant pressure on Alphabet to prove to investors that it is getting a good return on its spending. And to be fair, there are already many positive signs -- including excellent Gemini traction, positive updates with self-driving car company Waymo, and a boom in Google Cloud. But part of the surge in Google Cloud revenue is due to one-time chip sales, as Alphabet includes sales of its custom Tensor Processing Unit (TPU) chips under its Google Cloud revenue.
Google Search revenue was up 12% year-over-year, and YouTube ads revenue increased 9.2% -- which isn't bad but, it's a slowdown compared to Q3 2025 when Google Search revenue increased 14.5% and, YouTube ads jumped 15% year-over-year.
GOOGL - Alphabet
NASDAQ · As of 5:00 PM ET 10/30/26
Moneyball Superscore90/100Key data points
An AI ecosystem unlike any other
Alphabet is at a crossroads. Investors who don't believe in the payoff of its record capex may choose to sell the stock. Others who are skeptical but want to see how things play out may simply want to hold. I think Alphabet is misunderstood and a high conviction buy.
Operationally, Alphabet is at the top of its game -- with 32% operating margins in its latest quarter. On the earnings call, Alphabet said that around 65% of capex is in technology infrastructure like servers and networking equipment, which generally have useful lives of six years, and the remaining 35% is for data centers with useful lives ranging from seven to 40 years. Meaning that those investments aren't contributing to Alphabet's near-term results, but they will benefit the company over the long term.
Of all the hyperscalers, Alphabet is arguably the best positioned to invest aggressively in AI because it controls almost every layer of the AI ecosystem. It partners with Broadcom to manufacture TPUs, which have proven excellent for AI training and inference. As mentioned, Alphabet isn't just using TPUs in-house, but is now also selling them to third parties, which is contributing to Google Cloud revenue. In April, Anthropic expanded its partnership with Google and Broadcom for multiple gigawatts of TPU capacity. That same month, Broadcom and Google entered into a long-term TPU agreement through 2031.
In addition to its TPU boost, Google Cloud is now taking market share from Amazon and Microsoft in the cloud computing industry. Alphabet also has Gemini, powered by Google DeepMind, which is a legitimate heavyweight in frontier models alongside Anthropic's Claude, OpenAI's ChatGPT, and xAI's Grok, owned by Space Exploration Technologies.
And to top it all off, Alphabet has consumer and enterprise apps in Gemini, Google Search, Android, and YouTube, and is a massive investor in physical AI through Waymo.
The perfect AI stock for long-term investors
Alphabet's results look bad now because it's in the midst of a historic AI spending build-out, but it's not just throwing money at ideas and hoping it sticks. Rather, it has multiple levers to pull to monetize AI.
For that reason, I think Alphabet stands out as arguably one of the best AI stocks for patient long-term investors to buy now. But I could also see the sell-off worsening before it gets better, given Alphabet's accelerated cash burn.