What Is The Biggest Threat To Google Stock?

After a historic run, the biggest vulnerability for the company may not be a new threat but the extraordinary cost of maintaining its own success.

If you hold Alphabet (GOOGL) stock, you’ve been rewarded for betting on an AI-fueled juggernaut. The shares sit near their highs after a strong run of over 120% in the past year, and for good reason. The business is firing on all cylinders. But when expectations are this high, the most important risks are often hiding in plain sight, embedded in the success story itself. The central challenge for Alphabet is that the very AI dominance driving its stock is creating significant internal pressures that could threaten its record-setting profitability.

When ‘Best Ever’ Becomes a Burden

First, consider the company’s high profitability. Alphabet’s net margin over the last twelve months stands at 37.9%, the highest it has been in at least five years and substantially above its three-year average of 28.4%. Its trailing twelve-month operating margin of 32.7%, recently boosted by a massive 36.1% in the first quarter, is similarly at the high end of its historical range.

While strong margins this far above the norm are difficult to sustain. This creates a high-wire act for the stock. The current share price reflects these peak profits, meaning any normalization or reversion toward the average could trigger a re-evaluation by the market, even if the business remains fundamentally strong. The risk isn’t that the business is in trouble; it’s that it’s priced for a level of perfection that has little room for error.

The AI Arms Race Has A Price Tag

The force that could pull those margins back to earth is the very engine of Alphabet’s growth: the AI build-out. While AI is fueling strong demand, the cost to meet it is substantial and accelerating. Management has been clear about the scale of the investment required, warning that they expect their 2027 capital expenditures to “significantly increase compared to 2026.” They also cautioned that this spending will create “pressure on the P&L in the form of higher depreciation expense.” This is the direct mechanism of the risk: every new server and data center adds to the depreciation line, which directly eats into the operating margins investors are celebrating. The company even admitted it is “compute constrained in the near term,” a sign that even its considerable spending isn’t enough to keep up with demand. This creates a delicate balance where the cost of growth could begin to outrun the profit it generates.

For investors, the story is no longer just about AI-driven revenue. The key thing to watch now is whether those peak margins can withstand the escalating cost of the AI arms race. A key indicator would be a sustained downtick in operating margin, even as capital spending continues to climb.

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