Is Alphabet Stock Heading for a Fall?

January 6th, 2026 by Trefis Team
GOOGL: Alphabet logo
GOOGL
Alphabet

Alphabet (GOOGL) has stumbled before. Its stock plunged more than 30% within a span of less than 2 months in 2022, wiping out billions in market value and erasing massive gains in a single correction. If history is any guide, GOOGL stock isn’t immune to sudden, sharp declines.

Specifically, we see these risks:

  1. Forced Divestiture of Core Ad Tech Stack
  2. AI-Driven Search Market Share Collapse
  3. AI “Arms Race” CapEx Destroying Margins

 

Risk 1: Forced Divestiture of Core Ad Tech Stack

  • Details: Forced sale of key ad units at discounted value and severe multiple contraction resulting from ongoing regulatory overhang.
  • Segment Affected: Google Services (Ad Network)
  • Potential Timeline: Remedy Decision H1 2026
  • Evidence: Federal judge ruled Google operates an illegal ad tech monopoly (April 2025); DOJ is actively seeking remedies, including mandatory ad data sharing with rivals (June 2025).

Risk 2: AI-Driven Search Market Share Collapse

  • Details: A decline in high-margin ad click-through rates (CTRs). Top-result CTRs have been observed to drop when an AI Overview is present.
  • Segment Affected: Google Search
  • Potential Timeline: Next 2–3 Quarters
  • Evidence: Google’s U.S. search market share is projected to drop below 85% in 2026 (down from 87.4% in 2024). Current data shows traditional search volume is under pressure as Gartner predicts a 25% drop in traditional volume by year-end 2026.

Risk 3: AI “Arms Race” CapEx Destroying Margins

  • Details: Negative Free Cash Flow (FCF) conversion and a potential valuation de-rating as the profitability profile weakens due to massive infrastructure spending outstripping immediate revenue returns.
  • Segment Affected: Google Cloud & Google Services
  • Potential Timeline: Immediate & Ongoing (2025–2026)
  • Evidence: Alphabet’s 2025 CapEx guidance was revised upwards three times, starting at $75 billion and concluding in the $91–$93 billion range. Management has explicitly signaled that 2026 spending is likely to increase further.

What Is The Worst That Could Happen?

Looking at GOOGL’s risk, it’s clear downturns hit hard despite strong fundamentals. During the Global Financial Crisis, it plunged about 65%. The inflation shock saw a 44% drop, while Covid and the 2018 correction caused dips of around 30% and 23%, respectively. Volatility remains a real factor.

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Is Risk Showing Up In Financials Yet?

  • Revenue Growth: 13.4% LTM and 11.0% last 3-year average.
  • Cash Generation: Nearly 19.1% free cash flow margin and 32.2% operating margin LTM.
  • Valuation: Alphabet stock trades at a P/E multiple of 30.8

 

GOOGL S&P Median
Sector Communication Services –
Industry Interactive Media & Services –
PE Ratio 30.8 23.8
LTM* Revenue Growth 13.4% 6.2%
3Y Average Annual Revenue Growth 11.0% 5.7%
LTM* Operating Margin 32.2% 18.8%
3Y Average Operating Margin 29.9% 18.4%
LTM* Free Cash Flow Margin 19.1% 13.5%

*LTM: Last Twelve Months

If you want more details, read Buy or Sell GOOGL Stock.

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