Alphabet Stock Is Down 16% -- Is September the Month to Buy the Dip?
Key Points
Investors are concerned about how much Alphabet intends to spend on AI infrastructure this year.
Alphabet's Google is uniquely competitive in AI, leveraging a combination of depth and breadth in its offerings.
The investing crowd is likely to begin realizing this competitive strength sooner rather than later.
- 10 stocks we like better than Alphabet ›
If it feels like shares of technology giant and AI powerhouse Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) have underperformed of late, you're not imagining things. They have. The stock's down about 18% from its May peak, and within sight of July's multiweek lows, even though the Nasdaq Composite -- of which it's a key component -- is still near its all-time record high.
Blame worries about the roughly $200 billion it's earmarked for capital spending this year, mostly for artificial intelligence (AI) infrastructure. A bunch of investors remain unconvinced that these outlays will yield a sufficient return on investment. And for many companies in the AI business, 2026's AI spending may not pay off.
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Image source: Getty Images.
If any of these outfits are going to get their money's worth for shareholders, though, it's arguably Alphabet ... even if the market's not giving the stock any credit for its current (and likely future) growth.
Better than the rest
Most of the AI infrastructure industry did well enough last quarter. No company did nearly as well as Alphabet, though. Google Cloud -- where the company's artificial intelligence results are reported -- experienced revenue growth of 81% year over year, more than tripling this arm's operating income as a result.
This oversized growth largely reflects the completeness and strength of the company's cloud-based AI offerings. Not only does Google provide remote access to data storage, but its in-house-designed Tensor Processing Units (TPUs) provide as much raw AI computing power as any alternative. Just as important, Google provides several different AI computing software packages, each custom-built for a very specific purpose. Most rivals provide pretty complete offerings as well, although arguably none are as complete as Google's.
This competitive edge doesn't necessarily mean Alphabet is entirely immune to AI industrywide headwinds. It does, however, leave Alphabet better positioned than most of its competition.
Given how soon investors should start recognizing this company's competitive advantage, yes, the stock's weakness since May makes it a buy this month.
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James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
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