Alphabet (NASDAQ:) shares have returned to a major decision zone after Monday’s selloff wiped roughly 5% from the stock and dragged the wider lower.
The immediate trigger was renewed concern over Google’s ability to retain top artificial-intelligence talent after senior DeepMind researcher John Jumper reportedly left for Anthropic.
However, the decline was not solely about one employee. , and also fell as investors questioned whether the enormous sums being committed to AI infrastructure will eventually produce sufficient returns.
Google is still growing quickly. Investors are simply becoming less willing to accept massive spending without clearer evidence of future returns; rather than accept unlimited AI spending based on faith.
Technically, Alphabet has fallen into the $337.47–$349.00 region, which previously acted as resistance around the February high before becoming support. Buyers also defended this area earlier in June, producing a rebound towards $370.
This creates the possibility of a relief rally or at least a temporary pause. RSI has fallen to around 39, showing weak momentum without yet reaching deeply oversold territory. The stock has also erased most of its recent recovery in a short period, which may encourage short covering and attract investors who still believe in Alphabet’s longer-term AI strategy.
However, support has not yet been confirmed. The latest daily candle was strongly bearish and closed near the upper edge of the zone without forming a clear reversal pattern. Repeated tests can also weaken support as resting buy orders are gradually absorbed.
For Google bulls, the good news is that a four-hour bullish divergence is developing. Price has formed a lower low while RSI has produced a higher low, suggesting that bearish momentum is beginning to fade as the stock enters support.
The divergence strengthens the case for a temporary pause or relief rally, but it is not a standalone buy signal. Alphabet must first reclaim the upper edge of the support zone around $349–$352 and break above its latest four-hour lower high.
If buyers achieve that, the $365.82–$374.07 gap zone becomes the main recovery target. A decisive break below $337.47, however, would invalidate the divergence setup and leave the lower $320 region exposed.
Strong Business, Expensive Strategy
Alphabet’s first-quarter results show why investors may still defend the stock.
Revenue rose around 22% year-on-year to $109.9 billion, while operating income increased nearly 30% to $39.7 billion. Search revenue grew 19%, suggesting that AI Overviews and AI Mode have not yet damaged Google’s main advertising engine.
Google Cloud was even stronger, with revenue rising 63% to more than $20 billion.
Cloud backlog also climbed above $460 billion, while management said demand for AI products and infrastructure continued to exceed available supply.
The concern is not demand. It is the cost of meeting it. Alphabet expects capital expenditure of $180–$190 billion in 2026 and has warned that spending should rise significantly again in 2027.
First-quarter operating cash flow increased to $45.8 billion, but capital expenditure more than doubled to $35.7 billion. That left approximate free cash flow of just over $10 billion, down from roughly $19 billion a year earlier.
Investors therefore need more than rapid AI adoption. They need evidence that AI revenue, Cloud margins and Search monetisation can grow faster than depreciation, energy costs, infrastructure spending and financing requirements.
What the Market Needs Next
The next major test is guidance. Investors will want Alphabet to confirm that Search usage is still growing without sacrificing advertising economics.
They will also watch whether Cloud can maintain strong growth as it works through its enormous backlog, and whether capacity constraints genuinely explain the scale of investment.
Management must provide a clearer path towards stronger free-cash-flow conversion.
Continued spending may remain acceptable if Cloud revenue, AI subscriptions and operating profit accelerate with it. If costs rise faster than monetisation, the market may continue discounting Alphabet despite strong headline growth.
The macro environment is not helping. Markets are pricing a greater possibility of further tightening, while Treasury yields have risen and technology shares have come under pressure.
Higher rates reduce the valuation investors assign to long-duration earnings and increase scrutiny of capital-intensive expansion.
A Google rebound would therefore be more convincing if yields and the dollar stabilise alongside a recovery in Nasdaq futures. Without that support, a bounce from $337–$349 may remain temporary.
Micron Provides the Next AI Test
’s fiscal third-quarter earnings on Wednesday provide an important follow-up.
Google represents the companies paying for the AI buildout. Micron represents the suppliers benefiting from it through stronger memory demand, higher pricing and data-centre investment.
If Micron delivers strong results and guidance while Alphabet remains under pressure, it would reinforce the market’s preference for AI suppliers over the hyperscalers financing the boom.
A weak Micron reaction, however, would suggest that concerns are spreading beyond spending discipline towards the underlying AI demand cycle itself.
For now, Google has reached a technically credible relief-rally zone. The fundamentals remain strong enough to attract buyers, but the market is demanding proof that its extraordinary AI investment will create equally extraordinary returns.
Disclaimer: For educational purposes only. Trading comes with substantial risk, leading to possible loss of your capital. Traders are advised to do their own due diligence before investing.
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