Alphabet Beats Q2 Earnings but Stock Falls 1.5% on Capex Surge to $205B

Alphabet reported second-quarter revenue of $119.8 billion, beating analyst expectations of $116.9 billion, driven by 82% growth in Google Cloud. However, the stock fell 1.5% to $342.09 in extended trading after the company raised its 2026 capital expenditure guidance to $195-$205 billion from $180-$190 billion, signaling aggressive AI infrastructure spending that concerns investors about future profitability.

Q2 Results Beat Expectations Across the Board

Alphabet reported adjusted earnings per share of $2.85, slightly below the $2.89 consensus estimate, but revenue of $119.8 billion exceeded analyst expectations of $116.93 billion. Google Cloud was the standout performer, generating $24.8 billion in revenue, up 82% year-over-year and above the $22.46 billion estimate. Advertising revenue reached $81.63 billion, beating the $81.12 billion forecast. CEO Sundar Pichai called Q2 “an amazing quarter,” with overall revenue growth of 24% year-over-year.

Capex Hike Triggers Stock Selloff Despite Strong Cloud Momentum

Alphabet raised its full-year 2026 capital expenditure guidance to $195-$205 billion, up sharply from the prior $180-$190 billion range and above the $186.4 billion analyst consensus. The company is pouring money into data centers and AI computing infrastructure to meet demand from cloud customers and compete with rivals like OpenAI and Anthropic. CFO Anat Ashkenazi told analysts the company remains “supply-constrained” and is seeing “very strong demand” across the business. The stock fell more than 2% immediately after the announcement, as investors weighed whether the spending will generate sufficient returns.

Gemini Growth and AI Model Competition Intensify

Google’s Gemini AI app now has 950 million monthly active users and can process 22 billion tokens per minute, according to the earnings call. The company released three cheaper Gemini models this week to compete with lower-cost alternatives and address rising token costs. CEO Pichai said the company is testing the Gemini 3.5 Pro model and already investing compute resources into Gemini 4 to keep pace with frontier AI makers. Bloomberg reported Google delayed the 3.5 Pro launch over capability concerns, though the company disputed the characterization.

Future Obligations and Valuation Pressures Mount

Alphabet’s remaining performance obligations, or contracts still to be delivered, hit $514 billion, exceeding analyst expectations of $488.1 billion and signaling strong future revenue visibility. However, with Meyka grading the stock a B+ and analysts split between Buy and Hold ratings, the risk-reward is mixed. The stock trades at a 26.1x price-to-earnings ratio, above the historical average, while the RSI indicator at 40.3 suggests oversold conditions. The company’s free cash flow yield of 1.5% remains thin relative to capex intensity at 26% of revenue.

Final Thoughts

Alphabet delivered strong Q2 results with cloud revenue surging 82%, but the aggressive capex hike to $205 billion signals the company is betting heavily on AI dominance. With the stock down 1.5% and valuations elevated, investors must weigh robust cloud growth against mounting infrastructure costs and competitive pressure from cheaper AI models.

FAQs

Disclaimer:

The content shared by Meyka AI PTY LTD is solely for research and informational purposes.  Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.