Alphabet’s AI Ambition: A Costly Path to Future Dominance

Alphabet Inc. shares faced significant investor skepticism last week, declining approximately 4.5% to close at $322.86 on Friday. This pressure emerged despite the technology conglomerate reporting quarterly revenue and earnings that surpassed market expectations. The core concern stems from a staggering capital expenditure forecast for 2026, which has cast a shadow over near-term cash flow prospects and ignited debate about the financial toll of the artificial intelligence race.

During its earnings call on February 4, Alphabet's management projected capital expenditures (capex) for 2026 to land between $175 billion and $185 billion. This outlook represents a near-doubling of the roughly $91.4 billion spent in 2025. For the fourth quarter of 2025, the company posted revenue of $113.83 billion and earnings per share of $2.82, beating analyst forecasts. However, the sheer scale of the planned infrastructure investments has raised alarms about future free cash flow, even as the company's operating cash flow grew by 31.5% in 2025.

Waymo Secures a Major Vote of Confidence

Amidst the focus on soaring costs in Google's core business, Alphabet's autonomous driving unit, Waymo, delivered positive news. On February 2, 2026, the company confirmed a new funding round of $16 billion. This capital injection elevates Waymo's post-money valuation to an impressive $126 billion. Prominent investors, including Sequoia Capital, Dragoneer, and DST Global, participated in the round. The deal highlights the substantial standalone value within Alphabet's "Other Bets" portfolio, even as Wall Street's immediate attention remains fixed on the parent company's spending plans.

Should investors sell immediately? Or is it worth buying Alphabet?

An Industry-Wide Investment Arms Race

Alphabet's aggressive spending strategy is not an isolated event but part of a broader pattern among tech giants. Analysts at JPMorgan recently noted that rival Amazon is planning 2026 investments of approximately $200 billion, while Meta Platforms is targeting a range of $115 billion to $135 billion. This context underscores a sector-wide commitment to funding the enormous data center and hardware requirements of advanced AI.

Despite the initial "sticker shock" from the capex guidance, analyst sentiment remains largely constructive. The research firm Jefferies raised its price target for Alphabet's Class A shares to $400 on February 5, reaffirming its buy rating. The key question for the market is whether Alphabet can leverage its dominant positions in search and cloud computing to translate these colossal hardware investments into profitable returns.

The next quarterly results, expected in April 2026, are anticipated to provide early indicators on the efficiency of this capital deployment. Investors will be watching closely to see if the financial foundations laid today will secure Alphabet's supremacy in the AI era.