Google struggles below $350 as AI investment and regulatory risks grow

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Google balances growth and AI risks

Cloud growth offsets rising investment burden

Google Cloud was the main source of acceleration, with revenue surging 82% to $24.8 billion and cloud backlog reaching $514 billion. Alphabet’s operating income increased 30%, while its operating margin expanded to 34%. Headline EPS of $9.11, however, was heavily distorted by nearly $98 billion in unrealized investment gains, making the underlying performance of Search, Cloud, and operating margins more relevant when assessing the strength of the core business.

The key question for GOOGL now is the cost of sustaining its AI-driven growth. Alphabet raised its 2026 CapEx guidance from $180–190 billion to $195–205 billion and expects investment to increase further in 2027, as demand for AI infrastructure and cloud capacity continues to exceed available supply. In Q2, the scale of these investments already pushed free cash flow to around negative $5.9 billion, increasing the stock’s sensitivity to any signs that returns on data-center spending may be weakening.

Meanwhile, the commercial side of Alphabet’s AI strategy continues to expand. Nearly 90% of Fortune 100 companies use Gemini Enterprise, while in early September Google introduced Gemini 3.8 Flash and the specialized 3.8 Flash Cyber. Another sign of the company’s infrastructure expansion came with the announcement of €13 billion in digital and AI infrastructure investment in Finland over the next two years.

Regulation becomes more relevant for AI expansion

The scale of this infrastructure program is also making the U.S. midterm elections and the broader regulatory debate increasingly relevant risks for Alphabet. According to an AP-NORC poll published on September 16, 53% of Americans are extremely or very concerned about the environmental impact of AI, while around 60% support restrictions on the construction of new data centers.

AP also notes that data centers have already become a visible issue in the 2026 campaign because of their water and electricity consumption, with opposition to new projects emerging in communities across the political spectrum. At the same time, Democratic lawmakers have been pushing more actively for federal AI safety measures, while the Trump administration has generally favored a significantly less restrictive regulatory approach.

A change in control of the Senate could therefore shift investor expectations around future regulation, but it would not automatically lead to new rules or an inevitable selloff in GOOGL. For Alphabet, the more important issue is the specific form of any future requirements covering data centers, model safety, and energy consumption, as these could raise costs and slow the pace of further AI capacity expansion.

GOOGL remains trapped below resistance

After finding support around $328, GOOGL has recovered toward resistance at $348, but buyers have so far been unable to break through this level. The stock therefore remains in a consolidation phase. Its long-term outlook remains constructive, while in the short term, as noted in Google AI expansion supports recovery despite heavy CapEx, a pullback toward the $330–325 area remains possible.

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