Sundar Pichai Raised Alphabet's 2026 Capex Forecast to as Much as $205 Billion, Sending the Stock Down 7%. Is This an Overreaction Investors Should Buy Into?

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) reported its 2026 second-quarter earnings on July 22, announcing its capital expenditures would be higher than previously anticipated. Instead of an earlier forecast of $180 billion to $190 billion, Alphabet now expects to spend between $195 billion and $205 billion in 2026.

What followed was a drop in the stock price, which wasn't a surprise, given that capital expenditures on building out artificial intelligence (AI) are being more closely scrutinized. But while the stock price slid roughly 7% following the news, Alphabet may still offer a long-term buying opportunity.

Image source: The Motley Fool.

Some Alphabet investors have spending worries

On the company's second-quarter earnings call, Alphabet CEO Sundar Pichai shared some impressive stats. Cloud revenue climbed 82% to $24.8 billion from the prior-year period, and its Gemini App now has 950 million monthly active users.

Still, what seemed to worry investors was the increase in capital expenditures. Not only did Alphabet's spending in the second quarter increase 100% year over year to $44.9 billion, but, as mentioned earlier, it also boosted its capital expenditure forecast for the year.

Pichai explained that the raised 2026 capital expenditure forecast is a necessary investment to meet overwhelming customer demand for AI infrastructure and cloud capacity, which continues to exceed available supply. Google Cloud's "momentum is driven by our integrated AI portfolio consisting of chips, models, data, security, and agent platforms, all designed to work together," Pichai noted.

Finding ways to fund that is also creating worry, as Alphabet announced an $80 billion equity raise in June.

Equity raises, in turn, lead to concerns about shareholder dilution. Also, Alphabet's spending has put pressure on free cash flow. It was negative in the second quarter, the first time it has been negative since 2004. Alphabet has also recently returned to raising more money, selling $25 billion in investment-grade bonds on Aug. 6.

That said, to Alphabet's credit, it also has its share of supporters who argue that spending is necessary to remain a leader in AI, which could be a $1.4 trillion global market by 2032, according to data from Statista.

The Alphabet believers

Berkshire Hathaway has let its investment do the talking about its belief in Alphabet. The conglomerate run by CEO Greg Abel has made several investments in Alphabet, with the Berkshire portfolio now holding over $30 billion worth of Class A (voting) and Class C (non-voting) shares.

In addition, even as Alphabet continues to raise money, investors still want a piece of whatever the company offers. For example, its most recent $25 billion investment-grade bond sale attracted $115 billion of peak demand, according to Bloomberg. It also priced $20 billion in bonds in February, attracting $103 billion worth of demand.

The bottom line is that any time concerns over spending are raised, it's likely to continue to weigh on the stock price. But Alphabet can still be a long-term winner and a leader in the AI market.

Jack Delaney has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Berkshire Hathaway. The Motley Fool has a disclosure policy.