Alphabet shares have declined for four straight months, their longest losing streak since 2015, even as second-quarter revenue growth accelerated. Heavy AI-related spending pushed free cash flow negative, but Google Cloud's profitability roughly tripled. The stock's forward price-to-earnings ratio has fallen to about 22, down from about 27 in mid-May.
Alphabet shares trade around $337, about 18% below the 52-week high of $408.61 the stock set in mid-May. May, June, July, and August each closed lower than the month before, the company's longest run of monthly declines since 2015. Even after the slide, Alphabet is worth about $4.1 trillion.
Revenue growth is accelerating, not slowing
Alphabet's second-quarter revenue rose 24% year over year to $119.8 billion, an acceleration from 14% growth in the year-ago period. Operating income climbed 30% year over year, and operating margin widened from 32% to 34%.
That growth was broad-based. Google Search & other revenue rose 17% year over year, and YouTube ads revenue rose 13%. Google Cloud revenue jumped 82% to $24.8 billion, with the segment's operating income roughly tripling to $8.8 billion.
Free cash flow has turned negative
But the same report showed capital spending doubling from a year earlier to fund the company's AI build-out. Alphabet's capital expenditures reached $44.9 billion in the second quarter, double the year-ago figure.
Free cash flow moved the other way. It came in at $24.5 billion in last year's third quarter and $24.6 billion in the fourth, then fell to $10.1 billion in this year's first quarter before turning negative $5.9 billion in the second quarter. Management raised its full-year capital expenditure guidance to a range of $195 billion to $205 billion, up from $180 billion to $190 billion, and said it expects capital expenditures to rise significantly again in 2027.
According to the Motley Fool, chief financial officer Anat Ashkenazi said on Alphabet's second-quarter earnings call that "the free cash flow will remain under pressure driven by our investments in technical infrastructure".
How Alphabet is funding the buildout
Alphabet has changed how it pays for the spending. It bought back about $28 billion of its own stock in the first half of 2025 but none in the first half of 2026. Instead, the company raised $49.6 billion in June by selling new stock, including a mandatory convertible preferred stock paying a 6.25% dividend, and ended June with $98.2 billion of long-term debt, more than double where it started the year.
Alphabet's forward price-to-earnings ratio is now about 22, down from about 27 on the same expected earnings at the stock's mid-May high.
Source: The Motley Fool
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