Alphabet Stock Drops 7% Despite Record $112B Profit on Capex Surge

Alphabet reported its strongest quarter in company history on July 23, posting $112.1 billion in net income and $119.8 billion in revenue. Yet the stock fell 7.1% to $317.69 as investors reacted to the company’s decision to raise 2026 capital expenditure guidance to $195-$205 billion, up $15 billion from prior estimates. The capex surge reflects Alphabet’s aggressive push to build AI infrastructure and meet surging demand for cloud services.

Record profit masks capex concerns

Alphabet’s Q2 net income jumped 298% year-over-year to $112.1 billion, the highest quarterly profit in company history. Revenue grew 24% to $119.8 billion, beating analyst expectations of $116.9 billion. Yet the stock declined 1.46% at market close and another 3.72% overnight after CEO Sundar Pichai announced the capex increase. Analysts had drawn a line at $200 billion. “The 200 was the do-not-cross line,” Brian Mulberry of Zacks Investment Management told the Wall Street Journal. “You can’t be offloading this much cash and not talk about it.”

Cloud business accelerates at record pace

Google Cloud revenue surged 82% year-over-year to $24.77 billion, far outpacing analyst expectations of $24.56 billion. Cloud operating income more than tripled to $8.8 billion, pushing margins to a record 36%. The backlog of unfulfilled cloud contracts reached $514 billion, up from $488.1 billion that analysts projected. Cloud revenue increased 82% year over year, driven by demand for AI infrastructure and AI solutions.

AI spending strains free cash flow

Alphabet’s quarterly free cash flow turned negative as the company pours capital into data centers and chips for AI. The company also plans an $85 billion equity package after debt climbed from roughly $16 billion to $100 billion in one year. Quarterly free cash flow turned negative as capex spending accelerated. Meyka rates GOOGL a B+ with a neutral recommendation, citing a PE ratio of 24.23 against a 12-month forecast of $291.33, suggesting limited upside at current levels.

Gemini adoption reaches critical mass

Gemini API now processes 22 billion tokens per minute, up from 16 billion last quarter. The Gemini app reached 950 million monthly users. CEO Sundar Pichai announced new models, Gemini 3.6 Flash and Gemini 3.5 Flash-Lite, designed for cost efficiency. Gemini 3.5 Pro remains in testing, while the company has begun its most ambitious pre-training run for Gemini 4. More than 9 million developers build monthly with Alphabet’s models.

Final Thoughts

Alphabet’s record profit and booming cloud business validate its AI bet, but the capex surge raises questions about returns. With Meyka grading the stock B+ and nine analysts rating it Buy against one Hold, the market is pricing in uncertainty around whether massive spending will drive proportional revenue growth.

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