Broader markets have been reeling as the Iran war has pushed crude oil prices above $100 a barrel. If energy prices continue at this level, it will upset the fiscal and monetary policy math for many countries, and it will certainly not be a “small price” to pay for war with Iran, as President Donald Trump has said. Meanwhile, stocks in some sectors, particularly oil producers, have fallen sharply left and right during the downturn.
Alphabet ( GOOG ) ( GOOGL ), which was the best-performing “Magnificent 7” stock last year, has fallen 14% from its 2026 high and is down 4.4% for the year. In my previous article, I mentioned that I didn’t find Alphabet stock buying in the middle of selling software. With GOOG just closing its year-to-date close, let’s see if the stock has now entered a “buy zone” after nearing the $300 price level. But first, we’ll analyze the ways that higher energy prices affect the alphabet.
The direct impact of higher energy prices will be felt in the operating costs of Alphabet’s energy-guzzling data centers. However, the real blow may come from the domino effect of rising energy prices and, by extension, higher inflation in Alphabet’s earnings. The company derives a large portion of its revenue from the advertising business, whose fortunes are closely linked to economic activity.
If the war widens and oil prices rise further, it will affect consumer and corporate spending and hurt the company’s advertising business. Also, the cloud business may feel the heat if companies cut their costs.
A drop in revenue would be the end result for Alphabet and US tech companies as they spend heavily on building artificial intelligence (AI) infrastructure. There are already fears of debt-financed spending, which could weaken big tech’s hitherto strong balance sheets.
For example, Alphabet raised more than $30 billion through a bond sale last month, garnering significant attention for the 100-year bond it issued as part of its offering.
In the meantime, I believe it’s a little early to buy a dip in Alphabet stock. First, given the ongoing conflict in the Middle East, the broader market may remain volatile in the short term. With the S&P 500 Index ($SPX) down nearly 4% from its record high, I don’t believe the risk of an Iran war is fully priced into the markets.
