I have been watching this area on my frame and it seems to have gotten a bit bigger in the last couple of months and I was wondering how much of an issue this will be in the future. The bike is a motobecane grand record from 2012. It is an aluminum frame which the spec sheet is 7005 AL.

That's obviously serious corrosion on the cable stop and the paint is also damaged. Even the cable housing looks damaged. Where is your bike stored and did anything corrosive drip or splash on it? It doesn't look good.

There is a lot of metal fatigue in that portion of the top tube. You may have to sand that down to see what the extent of the damage is. However, if I were to wager, I'd say it's time for a new frame.

I have always kept the bike indoors and I only clean it with soap and water on the frame. Also when using it on the trainer I have a sweat guard I use to keep the sweat from dripping all over the frame.

That's not fatigue, that's corrosion and perhaps your sweat guard isn't doing the job. Concentrated salt solutions (e.g. drying sweat) will cause that kind of corrosion on aluminum if it's not painted properly.

Is my best course of action to sand down and see what the extent of the damage is or just start looking for a new frame this winter?

Probably both. Sanding is easy, so no harm in doing that first. Flat black paint is easy to match, especially for a small area.

I would sand it down to see what really going on there. Best case you just need to put on some new paint and worst case the frame is junk. No way to know until you do the sanding. Roger

Motobecane Grand Record is an $800 Bikes Direct bike at best.

Personally, I would not even bother to sand it and would just look for another bike or frame.

That choice depends on each person's financial situation and time constraints.

Since it is a rainy day I went ahead and sanded that area down. Paint came off real fast in pieces from that area and after a little more cleaning of it it looks like the frame it self is ok. Now to do a little more detailed sanding and then get some paint.

It seems to be ok but go EASY with the sanding, those tube walls are thin. Get some primer intended for aluminum and prime the area before painting over it.

I am just going to do a bit around the cable stop since I didn't do much there to clean it up a little and then look for some primer later to today. Thanks for the information and looking at it.

Aluminum oxidation tends to bubble up like that but results in very little actual metal loss or pitting.
Clean as you have, prime with an aluminum primer and paint.

Sweat is the most likely culprit for that damage.

I stand corrected.

I'll bet there was a brass housing stop on the brake housing. Salt water, brass and aluminum do exactly what you saw. I'll bet also that the brass stop was near completely wasted away. I've spent years salt water sailing. On boats we take pains to see that bronze is used, not brass, that aluminum and bronze/brass do not touch and that important bronze fittings are protected by mechanically attaching a pies of sacrificial zinc which corrode away (like I presume your brass stop did) to protect the bronze.

The other approach is to keep salt water away. Not feasible in marine environments and not for everybody on a trainer.

Ben

A brass housing cap is my diagnosis also. Brass or bronze on aluminum is very bad.

We see a lot of this kind of corrosion on AL frames at work. For some reason Cannondales are a fair number of the ones we do see (although some early carbon tubed Treks suffer in greater numbers too). I always attributed this to salt induced corrosion. This damage is almost always on the rear brake cable stops on the top tube, right where sweaty drips or legs will contact the stops/tube/cable. We auger out the stop (after sometimes having quite a hard time pulling the cable/casing out of the stop) with a 5mm allen wrench and coat the stop with grease. We then tell the customer of the problem and far more frequent maintenance is needed to avoid future problems. We have seen a few times enough stop damage to have strong concerns about it's ability to remain reliable. I replaced one top tube stop with a clamp around one (Backstop?) Andy.

Only on rather extreme uphills.
Otherwise, I remain seated...........