Alphabet's plan to sell $80 billion in stock to fund its AI buildout isn't all bad
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The cloud and search giant announced late Monday that it plans to raise $80 billion through a stock offering, including a $10 billion investment by Berkshire Hathaway . It's the latest step in an aggressive effort by big tech companies to secure future funding for AI infrastructure. Alphabet said it intends to use the proceeds for "capital expenditures to scale AI infrastructure and global compute." Selling stock to fund investments is traditionally frowned upon because it dilutes the stakes of existing investors. In addition, Alphabet is seeking to raise half of that capital through what's called an at-the-market (ATM) strategy, in which a company incrementally sells newly issued shares in the secondary market over time. All of this is not ideal for investors. "You're not going to be able to get the stock really rolling because as soon as it starts rolling, they put [more] stock out. That's part of the problem with an ATM program," Jim Cramer said during Tuesday's Morning Meeting . As shareholders, we would much prefer Alphabet (or any holding) to fund investments with its free cash flow, which is more sustainable than raising capital from external sources. A second-best scenario is using debt because it doesn't dilute existing shareholders. Alphabet recently raised $25 billion through a bond offering in November 2025 and more than $30 billion in February. This time around, Alphabet went with the third, and least preferred, option: stock sales. "We have to recognize that there are a lot of companies raising cash. That's typically not a great time to buy stock," Jim said Tuesday on CNBC. Jim came away Tuesday morning surprised that the stock was "hanging in here," suggesting that the news should have been more of a drag on shares. Goldman Sachs CEO David Solomon echoed that sentiment during a Tuesday interview with CNBC at the Economic Club of New York. Alphabet stock is "trading quite well," considering this is the "largest follow-on equity deal that's ever been done." Solomon stressed, "It's encouraging." The CEO's comments came when the stock was paring earlier losses. The Alphabet stock sale plan was another feather in the cap for Goldman Sachs, which was chosen as the agent for the private placement. Goldman, JPMorgan Chase, and Morgan Stanley were picked as joint book-running managers for the underwritten offerings. Last month, we found out that Goldman is the lead underwriter on the upcoming initial public offering (IPO) of Elon Musk's SpaceX. AI darlings, Anthropic and OpenAI, are also expected to go public this year or in early 2027. By raising capital now, Alphabet may be positioning itself to secure funding while it is still available. "It's a move you would typically expect to see from a startup, not an established company expected to do about $215 billion in operating cash flow this fiscal year," Club analyst Zev Fima said. "Maybe the thinking is that they can use startup-like funding to back startup-like businesses. After all, Gemini is something of a startup within the broader Alphabet portfolio." GOOGL YTD mountain Alphabet YTD While slightly off Tuesday's lows, shares of the Google parent closed down nearly 4% at just under $362 each. The stock almost made it back to the flatline at session highs, perhaps getting a break due to the company delivering stellar first-quarter earnings in late April, supported by strong demand for its AI products. That pushed Google Cloud's backlog much higher, proving the company's AI investments are driving performance across the business. There is no denying that companies need to invest to avoid being left behind in AI. Alphabet in April bumped up its capital expenditure forecast this year to between $180 billion and $190 billion, up from its previous estimate of $175 billion to $185 billion. The stock sale plan helps fund that spending without taking on more debt and preserves cash — something every megacap is worried about since free cash flow is being squeezed by spending. Alphabet said the stock sale plan is part of the company's goals to "fund its investments in a balanced way while retaining a healthy balance sheet." "If these investments pay off, they can repurchase stock and reverse the dilutive impact as the need to invest aggressively begins to wane," Fima said. "If they don't, well, we've got bigger problems than the dilution that results from this — and the offer price will end up looking pretty good, given the pummeling we would see in the stock." For investors, the announcement raises an important question: Why is one of the world's largest cash-generating companies turning to capital markets for additional funding? The answer ultimately lies in the unprecedented scale of the AI buildout now underway across the tech industry. "The more you spend, the more you make. That's what keeps me in [Alphabet]," Jim said, referencing Nvidia CEO Jensen Huang's recent comments at Computex about the need for high levels of AI-related capital spending. During Nvidia's latest earnings call in late May, Huang also said, "It is very clear compute is revenue, compute is profit. Wall Street firm Baird said Monday the Alphabet offering was "another indication of the scale and urgency of the AI infrastructure buildout, along with the scale of demand." More broadly, the analysts estimate that AI-related debt and equity financing across hyperscalers, AI labs, and neoclouds has exceeded $600 billion over the past two years, part of what it expects will become a $4 trillion investment cycle through 2030. Bottom line Alphabet does not appear to be raising capital because it lacks cash; rather, it suggests management believes the AI opportunity is large enough and demand is urgent enough to accelerate investments beyond what it would otherwise fund through operating cash flow alone. It also suggests management sees a much larger AI opportunity ahead than investors may currently appreciate. Given its track record, Alphabet has earned the benefit of the doubt, at least for now. (Jim Cramer's Charitable Trust is long GOOGL, NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED. More In Analysis Broadcom has its mojo back into earnings. What it will take to keep the momentum going Natasha Abellard 11 min ago We're upping our Palo Alto price target after strong earnings vanquish AI disruption fears Jeff Marks Honeywell's aerospace spin approaches key milestone. Plus, the new stock supply problem Jeff Marks Read More
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