Google has acknowledged that AI is impacting its core business. What should investors keep an eye on?

The cloud won't replace search growth. The market fears that AI will take revenue away from Google’s core business, and investors need to see that search revenue growth is accelerating, not slowing down, says Dave Wegner, portfolio manager at Aptus Capital Advisors. “Right now, the main argument in favor of the stock is the cloud business, but until search proves that AI is driving growth, the stock will likely continue to fall,” Reuters quotes him as saying. In fact, search revenue grew by only 12% year-over-year in the last quarter, even though growth was approaching 20% at the start of the year, the FT notes.

Capital expenditures will continue to rise. Alphabet CFO Anat Ashkenazi warned that spending will increase significantly next year compared to this year—in 2026, the company expects capex to range from $195 billion to $205 billion. Bank of America estimates that capital expenditures in 2027 will total $300 billion. This “could very well scare the market,” according to Jeremy Saltsburg, a senior investment specialist at Check Capital.

New debt and a stock offering are possible. Gil Luria, head of technology research at D.A. Davidson, is one of the few analysts who does not recommend buying Alphabet stock, maintaining a neutral rating, according to MarketWatch. He titled his note to clients following the earnings report “The Quarter We’ve Been Afraid Of?” Luria fears a sharp rise in expenses and that Alphabet will take on new debt. The company has already borrowed tens of billions of dollars, and in June announced its first stock sale in more than 20 years—worth $85 billion. The slowdown in advertising revenue growth may continue, so investors should be more cautious, Luria told CNBC.

A comparison with Microsoft does not favor Google. The markets are carefully weighing how capital expenditures relate to free cash flow, explains Dec Mallarkey, managing director of SLC Management . According to him, Alphabet’s competitor in the cloud business, Microsoft, “stands out for its spending discipline and delivers growth,” while Google “has failed to do so, and cash flow is expected to remain a weak spot throughout the coming year,” writes the FT. Microsoft also reported its results on Wednesday: with capital expenditures of $45.2 billion for the quarter, it maintained free cash flow of $18.6 billion.

By 2028, cloud computing will surpass search. That’s the prediction of Scott DeWitt, an analyst at Rosenblatt Securities , according to MarketWatch. For now, the gap is wide: in the third quarter, the cloud business generated $30.7 billion in revenue, while Search and YouTube combined generated $74.6 billion. But cloud revenue has doubled over the past year, and the order backlog has reached $561 billion; Alphabet expects to convert more than 55% of that into revenue over the next 24 months, Reuters reports. DeWitt calls this a “shift in the center of gravity”: investors will need time to come to terms with the fact that search may no longer grow as quickly as it has until now.