Why Is Alphabet (GOOGL) Still Falling After a Record Q2 Beat?

TradingKey - Alphabet (NASDAQ: GOOGL) closed out Friday, July 25, at $319.74. Overnight trading currently is at $322.22, down from the Wednesday opening of $374 and the $319 low reached after the close of Friday's trading. The quarter closed with a blowout beat against all the headline numbers such as revenue: $119.8 billion, +24% YoY, Google Cloud: $24.8 billion, +82% YoY and Operating margin: 34%.

But capital expenditures (capex) doubled year-over-year to $44.9 billion for Q2, and reported earnings per share (EPS) of $9.11 was not operating income, but included an estimated $6 to $7 per share in unrealized gains on the company's investment stake in Anthropic and SpaceX. On Friday, Moody's said that AI spend threatens the credit quality of Amazon, Meta, and Alphabet. Barclays sees a Buy for the stock, pointing to the opportunity to monetize the company's TPU-as-a-Service to enterprise customers. $315.04 is a key support level, while RSI has bounced back from oversold territory to 43.

What the Q2 Numbers Actually Were

The source for this article has wrong Q2 numbers. The actuals from Alphabet's SEC 8-K filing: Revenue was $119.8 billion, up 24%, not $109.2 billion, and EPS of $9.11, not $2.62. Google Cloud came in at $24.8 billion, up 82% YoY, not $16.4 billion growing at 32%. Capital expenditures were $44.9 billion, not $46.5 billion for the full year 2026 (and $44.9B for just one quarter). Operating margin was up 2%, to 34%. 

Those are the important, relevant figures because the selloff is being justified on the actual numbers: $44.9 billion, doubled year-on-year. That is for just one quarter. That is the Q2 number, alone. The EPS number, $9.11, was not operating income, but $6 to $7 per share in unrealized gains on the Anthropic and SpaceX investments.

There are three new things since the Thursday earnings call. 

First, Moody's came out on Friday with a note saying that AI spend threatens the credit quality of Amazon, Meta, and Alphabet, not an immediate downgrade but a formal signal that the rating agency views the capex trajectory as a medium-term risk. 

Second, Barclays came out with a Buy on the stock, citing the opportunity to monetize the company's TPU-as-a-Service capability. That means Alphabet can offer that compute capability to enterprise customers as a direct revenue stream on top of cloud service subscriptions. 

Third, Verizon signed a $1 billion Google deal. It's another concrete, concrete deal as AI infrastructure demand grows. The market hasn't priced in these new deals in expectations yet.

Why the Stock Is Down 15% From Pre-Earnings and Who Is Buying

Alphabet's $374 price prior to the earnings call had priced in a strong Q2. It had also not anticipated the capex revision to $195 to $205 billion annually. And that means the first-ever negative quarterly free cash flow number was a shock for investors. The $9.11 reported EPS, once investors identified the $6 to $7 of unrealised investment gains embedded in it, effectively confirmed that operating EPS was approximately $2.90, in line with consensus rather than dramatically above it. The bull case of an earnings-driven multiple re-rating was killed. The bear case of a capex-driven de-rating had begun.

The 52-week high is $408.61. Alphabet currently trades at $319, which translates to roughly 27 times last year's earnings, marking the lowest valuation multiple the stock has seen in over a year. This valuation applies to a company reporting a staggering 24 percent annual revenue growth rate, all at a P/E ratio of 27. Cantor's Eric Johnston presented a compelling argument for the long-term potential of hyperscalers during a Friday appearance on CNBC. He suggested that concerns regarding capital expenditure are unwarranted given that cloud margins increased from 17.8 percent to 36 percent across just two quarters, which implies that infrastructure investments are yielding results more rapidly than skeptics are allowing for.

In all, 63 analysts rate GOOGL stock as a Strong Buy, with a consensus price target of $417.70 over the next 12 months. This implies a potential 31 percent appreciation from its current $319 price level. For a company growing at 24 percent annually while trading at 27 times its current earnings, the investment thesis is simple: the market has seemingly priced in capex worries and is disregarding the cloud margin recovery. On the other hand, the bear case, voiced formally by Moody's this past Friday, is that annual capex in the $195 to $205 billion range isn't sustainable against the backdrop of its current free cash flow level. Eventually, this may require equity offerings, share repurchase reductions, or lowering guidance.

The Regulatory Backdrop Heading Into the Week

The regulatory pressure that weighed down Alphabet (GOOGL) shares during last week's selloff isn't going anywhere. The EU is getting ready to levy further fines against Google as part of its heightened crackdown on Big Tech. A separate court in the EU also validated a €781,655 (approx. $854,000) fine issued by Italy regarding advertising for gambling. And Google Play will permit third-party application marketplaces, as of next week, which was an EU Digital Markets Act-driven concession. 

These regulatory actions are manageable for a firm of Alphabet's size individually, but taken as a group, they will constitute ongoing headwinds to the business that were not the case three years ago for Europe-based operations. Trump cautioned the EU this past week that there will be a very heavy price to pay for punishing US tech companies, which raises the question of whether the US will exert influence to slow down EU enforcement efforts.

GOOGL Technical Setup

The stock was bid around $315.04 at $319.74 on a 4-hour time frame, which was the swing low tested by Alphabet Thursday. The RSI has bounced from a 25.6 reading to about 43, showing that the stock was not oversold to the point that a rebound must occur right now. GOOGL remains beneath the 50 EMA, which sits at $346.82, and the 200 EMA, which trades at $353.84. 

Alphabet (GOOGL) Price Chart - Source: Tradingview

If GOOGL manages to stay above $315.00, a potential bounce to $324.12 (the 23.6 percent Fibonacci), then $329.81, and $338.86 could occur. Once the stock falls decisively beneath $315.00, $307.54 and $297.90 become viable targets. The Federal Reserve meeting taking place later this week constitutes the overriding macro event. An dovish Fed message means the discount rate on Alphabet future free cash flow goes down and the bear case gets shorter.

Key Levels for the Week Ahead

• Friday Close: $319.74.
• After Hours: $322.22.
• One-Year Range: $187.82-$408.61
• Q2 Earnings: Revenue: $119.8 Billion (+24%), Cloud: $24.8 Billion (+82%), Margin: 36%, Capex: $44.9 Billion
• New for this Week: Moody's credit warning, Barclays Buy, TPU-as-a-Service, Verizon $1 Billion Google deal
• Consensus Price Target: $417.70 (63 Analysts, Strong Buy), P/E: 27, Revenue Growth: 24 percent
• Primary Support: $315.00. Below: $307.54, $297.90
• Potential Rebound Targets: $324.12 (23.6 percent Fibonacci), $329.81, $338.86

Bottom Line

Alphabet sits at $319, which is 15% down from its pre-earnings price, at 27 times earnings with 24% revenue growth, and Google Cloud growing 82% with improving margins. The selling was justified on a quarterly capex of $44.9 billion, a credit downgrade warning by Moody's and $6 to $7 in EPS coming from unrealized investment gains rather than from operating income out of an $9.11 EPS price.

The support is at $315 with $307.54 and $297.90 below and a technical recovery begins above $324.12. Barclays has a Buy on TPU-as-a-Service while this week Verizon signed a $1 billion deal with Google. The Fed is a macro catalyst that could bring the recovery sooner or later. The average price of 63 analysts who cover Alphabet is $417.70.