Alphabet Stock: Selloff Overdone or Warning Sign?

Alphabet's stock performance shows a divergence: up 21% over the past year, but down 22% from its May high. This drop occurred after the company began funding its AI buildout with new stock and an increased capital expenditure budget. Recent results revealed a 24% rise in second-quarter revenue, with Google Cloud growing by 82%.

However, this growth came with a significant cost, as free cash flow became negative for the first time in the company's public history. Alphabet raised its 2026 capital expenditure forecast substantially, signaling continued investment in AI and cloud infrastructure.

Despite these concerns, analysts anticipate normalized earnings per share to grow approximately 24% annually through 2028. The stock currently trades at its five-year average forward P/E ratio, which suggests the recent selloff might be excessive given future growth prospects.