This Artificial Intelligence (AI) Stock Has Dropped 13% in 1 Month. Here's Why It's a Buy

Is Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) run finally over? The company's shares had been performing very well, but over the past month, Alphabet has lost momentum, with its stock price declining 13%. There are several factors behind Alphabet's recent dip, but the company's prospects remain intact, making it an excellent stock to buy right now. Here's why.

The spending is justified

Alphabet has recently lost some key employees, including John Jumper, a leading artificial intelligence (AI) expert and Nobel laureate, who left the company to join Anthropic. On top of that, investors are increasingly worried about Alphabet's AI-related spending. The company recently announced an $80 billion equity capital raise to fund its AI ambitions. The tech leader expects capex spending -- which should be in the $180 billion to $190 billion range this year -- to rise significantly in 2027.

If Alphabet's spending doesn't pay off, we could see decreased revenue growth as profits and margins compress. However, the data we have suggests that Alphabet is right to invest heavily to fuel its AI business. In the first quarter, the company's revenue from its cloud segment, Google Cloud, was about $20 billion, up 63% year over year. It grew much faster than the rest of the business. Alphabet's total revenue came in at $109.9 billion, 22% higher than the year-ago period. Google Cloud's sales growth also accelerated significantly from the already impressive 48% it posted in Q4 2025.

One of the key drivers of this performance was Alphabet's AI business. The company reported that sales from products built on its generative AI models grew by almost 800% year over year in the first quarter. Further, Alphabet ended the period with a cloud backlog of $462 billion, which almost doubled from the previous quarter. This highlights sustained -- and even accelerating -- demand for its cloud services, especially its AI products, which are helping drive incredible growth. So, it makes sense that Alphabet continues to spend, as there may still be lucrative opportunities to tap into.

Multiple other growth drivers

One of the great things about Alphabet's business is its relative diversification. Cloud computing and AI may be driving much of the growth right now, but the advertising business is also performing well. Alphabet has a nearly insurmountable lead, with the undisputed top search engine in the world, a strong brand name associated with it, and network effects that allow it to grow search queries and improve results, thanks to the massive data at its disposal.

That's to say nothing of the company's strong position in video sharing and streaming through YouTube, which also generates substantial ad sales and recurring subscription revenue. The best part is that the digital advertising market is still on a growth path and will continue contributing massively to Alphabet's results for a long time, and the streaming market should also expand over the next decade.

Beyond that, Alphabet has potential opportunities that aren't currently contributing to sales growth but might eventually do so, such as its work in the autonomous vehicle market through Waymo. All of these initiatives highlight Alphabet's attractive long-term prospects. And after the company's recent slump, it is a great opportunity to buy its shares on the dip and hold them for the long term.

Prosper Junior Bakiny has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.