Alphabet got a boost from joining the Dow. But the stock is still having a bad month. Investors worry that the company's massive AI spending is not paying off.
A Big Day in a Bad Month
Verizon was removed from the Dow Jones Industrial Average, with Alphabet taking its place. But before Monday, the stock had declined during six of the previous seven weeks.
In May, Alphabet briefly held the title of the world's most valuable firm by market cap, surpassing Nvidia after trading hours. Now it is on track for its toughest monthly performance since February 2024.
The AI Spending Problem
Alphabet is spending heavily on artificial intelligence. It has raised more than $140 billion in debt and equity to fund that spending.
During the first quarter, the company refrained from repurchasing shares, an action it had not omitted in roughly ten years.
A further issue for Alphabet is a deficit in computing capacity. According to reports, Alphabet lacks adequate computing power to satisfy requests from business clients like Meta. To bridge the shortfall, the firm is relying on infrastructure competitors, among them SpaceX.
The computing shortfall is aggravating leading AI talent. Noam Shazeer, who previously co-led Gemini and left Google for OpenAI, said that "limited compute availability" was a source of his discontent. Additionally, researchers from Google DeepMind associated with Gemini and coding projects are departing to competitors such as Anthropic and OpenAI.
Competition From China
DeepSeek announced that the fourth iteration of its open-source model will launch in approximately 14 days. Meanwhile, Chinese AI models are driving down costs at a time when Google is attempting to establish a commercial enterprise around Gemini.
Investors are watching closely. Recent companies added to the Dow have faced difficulties post-inclusion: Nvidia, Salesforce, and Apple each saw share prices decline within 60 days of joining.
Broader Investor Concerns
Alphabet's cash reserves are decreasing as it pours money into AI infrastructure, a trend seen across Big Tech. The decision to skip share repurchases for the first time in a decade underscores the financial strain. With competition from DeepSeek and other Chinese models driving down costs, the pressure to commercialize Gemini is mounting.
Moreover, the departure of key AI talent could slow innovation at a time when rivals like Microsoft and Amazon are ramping up their own AI offerings. Alphabet's revenue growth has remained steady, but rising costs from these investments are squeezing margins, leaving little room for error in the months ahead.
What to Watch
Alphabet's cash reserves are decreasing.
