Missed Nvidia in 2009? This Rare Signal Is Flashing Again.\u00a0In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia.\u00a0For the first time in years, that same “Total Conviction” signal is flashing for a company 1\/100th the size of Nvidia.\u00a0Continue \u00bb<\/a> <\/p>\n Alphabet’s free cash flow<\/a> had already turned negative to ($5.9 billion) in the second quarter, the first negative free cash flow quarter in the company’s history. With the increased spending guidance, Alphabet’s free cash flow will likely remain negative for the year. <\/p>\n Negative cash flow is a new development for Alphabet, making investors understandably nervous. The big question is, will all that spending pay off? <\/p>\n Fortunately, Alphabet’s short-term and long-term history suggests it will — in spades. <\/p>\n Return on capital remains high <\/p>\n By virtue of its near-monopoly on Search and profitable YouTube franchise, Alphabet has maintained a high return on invested capital throughout its corporate life. But with the aggressive build-out of generative and agentic AI infrastructure, the question is whether that will remain the case. <\/p>\n Fortunately, a quick look at the company’s recent numbers suggests it will. <\/p>\n Investors should keep in mind that data centers and chips bought today will translate into growth in future periods. In the second quarter, Alphabet’s Google Services, including Search and YouTube, grew operating earnings by about $6.5 billion, or 19.6%. Meanwhile, the Google Cloud unit’s profits exploded by $6 billion, up 212% year over year. Alphabet-level activities, which mainly consist of artificial intelligence research and development, grew by about 71.7%, or $2.4 billion. <\/p>\n That’s about a $10.1 billion net increase in quarterly operating income attributable to past capital expenditures, or about $40.4 billion annualized. After taxes, investors can assume a $32 billion earnings growth impact from past capital expenditures. <\/p>\n Let’s also assume there is a six-month gap between capital expenditures and the revenue and earnings that flow from that spending, on average. So, we’ll assume second-quarter 2026 earnings growth was driven by capital invested in 2025. <\/p>\n In 2025, Alphabet invested $91 billion against roughly $21 billion in depreciation. So, let’s assume that $21 billion was for “maintenance” capital expenditures to maintain 2025’s revenue and earnings base. That leaves $70 billion in “growth” capital spending, mostly toward the AI-related growth we saw in the second quarter. <\/p>\n Taking the $32 billion in incremental earnings on $70 billion in growth capital spending amounts to a 45.7% return on invested capital. That’s a huge number; the average company’s return on invested capital is roughly 10% today, according to data from NYU Stern valuation professor Aswath Damodaran. <\/p>\n A massive payoff in the 2030s? <\/p>\n Warren Buffett stated in his 1992 letter to shareholders that: <\/p>\n Leaving aside the question of price, the best business to own is one that, over an extended period, can employ large amounts of incremental capital at very high rates of return. The worst business to own is one that must, or will, do the opposite — that is, consistently employ ever-greater amounts of capital at very low rates of return. <\/p>\n Alphabet is spending a tremendous amount of capital now, but high recent returns on that spending suggest Alphabet’s big AI bet is paying off today. If this continues, Alphabet will create significant business value in the AI era, making this pullback a great buying opportunity for long-term investors. <\/p>\n Should you buy stock in Alphabet right now? <\/p>\n Before you buy stock in\u00a0Alphabet, consider this: <\/p>\n The Motley Fool\u00a0Stock Advisor\u00a0analyst team just identified what they believe are the\u00a010 best stocks<\/a>\u00a0for investors to buy now\u2026 and\u00a0Alphabet\u00a0wasn’t one of them.\u00a0The 10 stocks that made the cut are built for long-term growth and could produce monster returns in the coming years. <\/p>\n Consider when\u00a0Netflix\u00a0made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation,\u00a0you’d have $377,990!*\u00a0Or\u00a0when\u00a0Nvidia\u00a0made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation,\u00a0you’d have $1,269,518!* <\/p>\n That performance is why people listen. With a track record of\u00a0beating the S&P 500 by 4x,\u00a0Stock Advisor\u00a0offers a distinct advantage. Don’t miss the latest top 10 list, available with\u00a0Stock Advisor, and join an investing community built for the long haul. <\/p>\n See the 10 stocks \u00bb<\/a> <\/p>\n *Stock Advisor returns as of July 28, 2026. <\/p>\n Billy Duberstein<\/a> and\/or his clients have positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy<\/a>. <\/p>\n<\/a> Image source: Alphabet. <\/p>\n