This "Magnificent Seven" Trillion-Dollar AI Stock Is Up 121% in 1 Year: It Still Faces 1 Huge Risk.

Artificial intelligence (AI) has become the defining trend of the decade. And few companies have benefited from this powerful secular trend quite like this technology titan has.

This "Magnificent Seven" stock, valued at $4.2 trillion, has catapulted 121% higher just over the past 12 months (as of April 24). As easy as it might be for investors to remain extremely bullish, it's best not to just assume that outsized success is guaranteed in the future.

Here's one huge risk this business faces that investors would be wise not to completely ignore.

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A jaw-dropping amount of money is being spent on AI

The economy is experiencing an AI-fueled capital expenditure (capex) boom. And Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is one of the companies leading the charge.

The internet giant has plans to spend $175 billion to $185 billion on capex in 2026, up roughly double from $91 billion last year. And compared to $22 billion in capex five years before that in 2020, the amount of money being thrown around has exploded.

On the one hand, bullish investors think this capital allocation is a smart move. Alphabet plans to continue expanding its technical infrastructure, "with approximately 60% of that investment in servers and 40% in data centers and networking equipment," according to CFO Anat Ashkenazi.

It's difficult to see the pace of spending slowing down anytime soon, especially since Alphabet's big tech peers are also sparing no expense.

What's more, AI is evolving so rapidly that the speed of change calls into question how long the useful life of the assets acquired from all of this capex will be. If AI innovation renders hardware and software obsolete after three years, for example, there is a never-ending need for replacement and upgrades, at least for the foreseeable future.

Show me the returns

Investors must be critical about all of this spending, particularly since no one knows what the ultimate payout will be. The biggest risk for Alphabet is that it doesn't earn an adequate return on all of this investment, and the cash outlays prove to be wasteful, negatively impacting shareholders who would've benefited from more aggressive stock buybacks or higher dividends.

Understandably, free cash flow (FCF) will take a hit in the near term. Wall Street analysts expect FCF to decline 70% year over year in 2026.

In the past, Alphabet was defined by its ability to consistently grow revenue at a strong pace, while reporting tremendous profits. Maybe its future will tell a different story.

I continue to view this business in a very favorable light. Alphabet has so many ways to leverage and monetize its AI capabilities, something rivals can't say. It has virtually unlimited financial resources. And it's also hard to be critical of CEO Sundar Pichai, who shifted the company's focus to be AI-first a decade ago.

But investors should pay even closer attention to Alphabet's revenue and earnings growth in the coming years.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.