Alphabet shares rose 2.6% in morning trading to $328.06, recovering part of the steep losses recorded after the company’s second-quarter 2026 earnings report.
The stock had fallen more than 7% last Thursday, marking its largest one-day decline in over a year. Investors initially reacted negatively to Alphabet’s higher capital spending forecast and its first quarterly negative free cash flow since the company went public in 2004.
Higher AI Spending Triggered the Initial Sell-Off
Alphabet increased its 2026 capital expenditure forecast to between $195 billion and $205 billion. The company had previously expected spending of between $180 billion and $190 billion.
The revised outlook raised concerns that Alphabet’s aggressive investment in artificial intelligence infrastructure could continue to pressure cash generation.
Investors were also unsettled by the company’s negative quarterly free cash flow. This added to concerns that Alphabet’s AI expansion may take longer to produce clear financial returns.
Google Cloud Growth Supports Alphabet Stock
Today’s rebound suggests investors are beginning to focus again on the strength of Alphabet’s underlying businesses.
Google Cloud delivered particularly strong results during the second quarter. Revenue from the segment jumped 82% compared with the same period last year, comfortably exceeding Wall Street expectations.
Google Cloud operating income also surged by more than 200% year over year. These figures strengthened the argument that Alphabet’s heavy infrastructure spending is supporting real business growth.
Analysts Remain Bullish on Alphabet
Several Wall Street brokerages maintained positive ratings on Alphabet following the earnings report.
Although some analysts lowered their price targets because of the higher spending outlook, the overall consensus remained favorable. The average analyst target also stayed well above the stock’s current market price.
This suggests many analysts believe the post-earnings decline was excessive compared with Alphabet’s long-term growth potential.
AI Infrastructure Demand Remains Strong
During the earnings call, Chief Financial Officer Anat Ashkenazi said demand for AI infrastructure continues to exceed Alphabet’s investment capacity.
Analysts viewed this statement positively because it suggests the company is responding to genuine customer demand rather than spending purely on speculative expansion.
A reported $1 billion Google Cloud agreement with Verizon provided further support for this outlook. The deal strengthened confidence that Alphabet’s AI and cloud investments can generate meaningful revenue.
Falling Oil Prices Improve Market Sentiment
The broader market environment also became more supportive.
Brent crude prices fell sharply to around $90 per barrel after the United States and Iran paused military strikes and entered diplomatic discussions. The move reduced concerns about energy supply disruptions that had pressured markets during the previous week.
Lower oil prices can also ease inflation fears and improve expectations for economic growth.
The Dow Jones Industrial Average traded higher, reflecting stronger risk appetite across parts of the U.S. stock market.
Technology Stocks Remain Under Pressure
Despite the improved mood, the Nasdaq Composite remained slightly lower.
Investors continued to show caution toward highly valued technology companies ahead of several major market events. These include the Federal Reserve’s July 29 interest rate decision and Meta’s second-quarter earnings release on the same day.
As a result, Alphabet’s rebound took place against a mixed backdrop for large technology stocks.
Alphabet Begins Recovering From Oversold Levels
Alphabet’s recovery was supported by several factors, including strong Google Cloud growth, continued analyst confidence and improving market conditions.
The stock may also have benefited from an oversold technical setup following last week’s sharp decline.
However, Alphabet remains well below its 52-week high of $408.61. Investors are also likely to continue monitoring the company’s free cash flow and the financial impact of its rising AI investments.
For now, the rebound suggests the market is beginning to separate Alphabet’s short-term spending pressures from the long-term earnings potential of its cloud and artificial intelligence businesses.
