JPMorgan Drops Alphabet From Focus List Over AI Spending, Monetization

JPMorgan removed Alphabet (NASDAQ:GOOG) from its Analyst Focus List on Monday while keeping its Overweight rating unchanged. The bank cited slower AI search monetization and heavy AI infrastructure spending as the reasons. It did not disclose new or old price targets. The move cuts near-term confidence without abandoning the longer-term bullish view.

The stock traded at $293.16 Monday morning. That is 15.61% below its level a month earlier and 6.4% lower year to date. Shares have still gained 5.37% over the past week. Reuters reported the shares may be ready for a corrective rally.

What did JPMorgan actually decide?

The Analyst Focus List removal is a call on timing, not on the business. JPMorgan finds stronger near-term momentum at Meta Platforms (NASDAQ:META). It still holds a positive view of Alphabet itself. The bank simply sees better catalysts elsewhere in the near term. No rating change accompanied the delisting.

The skepticism rests on two pressure points: monetization and capital intensity. Both showed up clearly in Alphabet's third-quarter results.

Where does search monetization fall short?

Search revenue grew 12% to $63.3 billion in the third quarter. That happened despite query growth at its highest level in five years. The gap between the two numbers is the core of the concern.

On the earnings call, JPMorgan analyst Douglas Anmuth pressed on that discrepancy. Alphabet's chief business officer conceded the point. Strong growth in AI Mode queries "had an impact because of the lower monetization we were seeing in AI Mode," the executive said.

The admission matters. AI-driven queries are growing faster than the revenue they generate. Ads in AI Overviews and AI Mode are now expanding internationally. Whether they close the gap remains an open question.

How heavy is the capital spending?

Capex reached $51.4 billion in the quarter. Free cash flow was negative $9.1 billion. Management held its 2026 capex guidance at $195 billion to $205 billion. It also said capex should "increase significantly in 2027."

That trajectory puts sustained pressure on cash generation. The full 2027 plan is due on the fourth-quarter call. Whether free cash flow stays negative under that plan is the second issue worth tracking.

Is the underlying business still growing?

The headline numbers remain strong. Third-quarter revenue rose 24.6% to $127.58 billion. Google Cloud revenue grew 103% to $30.71 billion. The Gemini app reached 1 billion users.

Earnings told a different story. GAAP EPS of $2.12 missed the $2.97 consensus. The main cause was an $8.7 billion loss on equity securities. That ended a 12-quarter streak of earnings beats.

On silicon, Google disclosed new 8tx and 8i Max TPU variants built for secure, long-context AI workloads. The chips expand its in-house alternatives to NVIDIA (NASDAQ:NVDA) hardware. That product line reduces Alphabet's dependence on external GPU suppliers, at least in principle. Actual adoption volumes were not disclosed.

Does valuation offset the spending risk?

The stock trades at a price-to-earnings ratio of about 12. Google Cloud's backlog stands at $561 billion. Management expects to recognize just over 55% of that backlog as revenue within 24 months.

The balance sheet adds cushion. Alphabet holds $265.1 billion in cash and marketable securities. The quarterly dividend is $0.22 per share. JPMorgan kept its Overweight rating on that strength.

Two open questions frame the outlook:

• Whether internationally expanding ads in AI Overviews and AI Mode close the gap between query growth and revenue growth.
• Whether the 2027 capex plan, due on the Q4 call, keeps free cash flow in negative territory.

Near-term volatility remains a real risk while Alphabet spends heavily on AI. The Q4 call, with its 2027 capex disclosure, is the next test of whether JPMorgan's patience — and its Overweight rating — survive contact with the spending plan.