Alphabet (GOOG): Is Massive Infrastructure Capex Worth It?

Alphabet (GOOG): Is Massive Infrastructure Capex Worth It?

Thu, September 17, 2026 at 2:50 PM GMT+3 4 min read

Hayden Capital, an investment management firm, released its second-quarter 2026 investment letter. The letter can be downloaded here. In the second quarter, the portfolio gained 6.9%, compared to the S&P 500's 15.2%. Overall, approximately 34% of the portfolio is in Asia, 43% in North America, and the rest spread across other regions. Hayden Capital remains guided by a strategy focused on high-quality franchises with stable earnings power, continuing to invest despite this year's challenging results. Their largest investments are experiencing over 40% revenue growth yet are trading at similar valuations to the broader market, indicating potential for future outperformance. The recent market corrections in AI investments have prompted a healthier perspective among investors, emphasizing the importance of strong business fundamentals. Companies are leaning towards partnerships with AI firms rather than outright replacements, ensuring better access to data and operational efficiency. Six months into the "SaaS-pocalypse," software incumbents remain resilient despite initial fears of disruption. While AI is indeed transformative, the anticipated rapid changes in markets have not materialized as quickly as expected. Also, check the fund's top five holdings to see its best picks in 2026.

In its second-quarter 2026 investor letter, Hayden Capital highlighted Alphabet Inc. (NASDAQ:GOOG). Alphabet Inc. (NASDAQ:GOOG), the parent company of Google, offers various platforms and services, including online search and advertising, cloud solutions, and artificial intelligence. On September 16, 2026, Alphabet Inc. (NASDAQ:GOOG) closed at $339.36 per share, reflecting a market capitalization of $4.2 trillion. Alphabet Inc. (NASDAQ:GOOG) posted a one-month return of 0.34%, while its shares gained 34.49% over the past 52 weeks.

Hayden Capital stated the following regarding Alphabet Inc. (NASDAQ:GOOG) in its Q2 2026 investor letter:

"Well, one of the largest debates consuming the market today, is really a ROIC x Reinvestment Rate question. Alphabet Inc. (NASDAQ:GOOG) is guiding to as much as $205 billion of capex this year (LINK). Amazon, $220 billion. Meta, $130 – 145 billion. Microsoft, roughly $190 billion. Together, the large hyperscalers will spend close to $800 billion on capex in 2026 – over +80% growth y/y.

In Q2, Alphabet posted negative free cash flow of ~$6 billion – its first negative quarter since the 2004 IPO – as quarterly capex doubled to ~$45 billion (LINK). By one estimate, industry capex HAYDEN CAPITAL 7 is compounding at ~70% a year against operating cash flow growing just ~23%, and those two lines are about to cross.

So for the first time, this gap needs to be funded with external capital (i.e. riskier). Incremental annual debt has gone from ~9% of capex in 2024 to ~32% over the last twelve months (LINK), and Alphabet priced an $85 billion equity raise in June – the largest ever by a listed corporate, from a business that didn't know how to spend its cash for two decades. Businesses once prized precisely for their capital-light margins and prodigious cash generation now look, functionally, like capital-intensive industrial businesses. It's obvious that the reinvestment rate is running towards 100% (and for some, already above it, funded with borrowed money). So the question the entire market is asking is: "is it worth it"?"

Alphabet Inc. (NASDAQ:GOOG) ranks 7th on our list of 40 Most Popular Stocks Among Hedge Funds. As per our database, 195 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOG) at the end of the second quarter, which was 201 in the previous quarter. While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOG) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we discussed why Bill Ackman sold his stake in Alphabet Inc. (NASDAQ:GOOG). In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.

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This article is originally published at Insider Monkey.