We recently bought 50 shares of Alphabet, priced around $301 each. After this purchase, the Jim Cramer Charitable Trust will hold 200 shares of GOOGL, increasing our stake from 1.15% to around 1.55%. We’re re-entering the market as Alphabet’s stock continues to decline from its highs in February. The last time we bought, the shares were about $318 each. Since the earnings report a few weeks ago, Alphabet’s stock has dropped roughly 9%. We felt the earnings results were strong—revenue growth in search and Google Cloud was particularly encouraging. However, there’s a significant issue affecting all major tech stocks lately: free cash flow is diminishing, primarily due to high capital spending plans. Google’s parent company announced intentions to spend between $175 billion and $185 billion in capital expenditures by 2026, a stark contrast to the market’s estimate of $115 billion and the $91 billion spent last year.
As the market adjusts to this spending level and the reduced free cash flow, it may take some time. Alphabet’s free cash flow was just under $70 billion in 2024 and 2025, but projections suggest it will tumble to about $33 billion in 2026, according to FactSet. To provide context, estimates for MetaPlatform predict a free cash flow of only $6 billion, while Amazon could see outflows of $10 billion. Microsoft is expected to generate about $65 billion in free cash flow over the next four quarters. It’s uncertain if such a heavy capital investment will yield positive results, but we believe Alphabet has a more promising outlook compared to its competitors. This is partly why we included it as one of the Magnificent Seven stocks to consider amid the broader tech selloff. Google Search revenue has been boosted by AI, with increased activity from AI-driven inquiries. Meanwhile, Google Cloud seems to be gaining market share, evidenced by a 55% year-over-year growth in its backlog, reaching $240 billion by year-end.
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