Tigerong
07-26

For the past month, the market has been whispering that the AI trade is done. Memory stocks took the brunt of it, on the belief that chip prices had peaked. Their share prices fell hard.

Alphabet’s guidance says otherwise. Higher capex and a shortage of AI cloud compute mean the spending cycle is still running. Alphabet has stopped its share buyback because it needs the cash for AI, while it continues to issue stock to raise funds and to reward employees with options. Share count is up 1.2% in six months. That is dilution, and it is new. Previously the buybacks more than offset the issuance. On top of that, Alphabet took on $19.1B of mandatory convertible preferred shares and $56.2B of debt. And the fundraising is not ending soon. Roughly $106B of securities are expected to be issued over the next six months.

Alphabet guided 2026 capex to $180B to $190B. This quarter, management raised it by another $15B to $195B to $205B. AI spending is not peaking. It is not even slowing. It is accelerating.Revenue grew 24%. The standout was Google Cloud, where growth accelerated to 82% from just over 30% in the previous quarter. That is a huge jump off a much bigger base. Operating margin also expanded from 20.7% to 35.6%. Alphabet is monetising its AI tools and compute, and it has reached scale.

Alphabet Drops 6.9% Post-Earnings: Does $200B Capex Spook the Market?
Alphabet fell 6.89% after guiding 2026 capital expenditure toward approximately $200 billion, stoking fears that AI investment will erode profitability. Despite solid Cloud and Search results — and recent buying by Buffett — the repricing of "heavy capex, slow returns" wiped more than $700 billion from Mag-7 market caps in a single session. Investors are reassessing the valuation anchor for mega-cap tech. As the AI arms race becomes a test of spending endurance, can Alphabet's moat absorb the bill?
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