Alphabet beat Wall Street on the top line with Q2 revenue of $119.8 billion, up 24% from a year earlier, yet its shares fell more than 3% after hours. Investors fixed on a climbing capital-spending bill for AI — now as high as $205 billion for 2026 — and free cash flow that has turned negative.
Alphabet shares dropped more than 3% in Wednesday's after-hours session even after the Google parent beat expectations on the top line, as investors zeroed in on the mounting cost of its AI buildout. Revenue rose 24% year over year to $119.8 billion, ahead of the $116.9 billion analysts expected. The decline extends a slide that began in mid-May, after the stock closed at a record high of $402.62 on May 13.
Rising AI spending weighs on the stock
Alphabet lifted its 2026 capital-expenditure outlook to between $195 billion and $205 billion, up from the $180 billion to $190 billion range it gave in April. The company said surging demand for AI infrastructure is outrunning available capacity, and executives signaled capital spending would rise significantly in 2027.
Because of that buildout, quarterly free cash flow has turned negative. About 60% of the quarter's infrastructure spending went toward AI servers, with the rest going to data centers and networking gear.
Google Cloud powers the growth
Cloud is becoming Alphabet's main engine of revenue growth. Google Cloud sales jumped 82% to $24.8 billion, well ahead of analyst forecasts.
Growth accelerated from 63% in Q1 and 48% in Q4 2025. Cloud backlog climbed to $514 billion, up from $460 billion a quarter earlier. According to Business Insider, finance chief Anat Ashkenazi said the business remains supply-constrained: "We're still in a supply-constrained environment" as enterprises rushed to build AI applications.
Gemini nears a user milestone
Alphabet's consumer AI is gaining ground. The Gemini app now counts 950 million monthly active users, up from about 650 million last October.
That puts it close to OpenAI's ChatGPT, which recently reached roughly 1 billion monthly users. This week Google rolled out three new Gemini models, including Gemini 3.6 Flash, which it says improves coding while using fewer tokens.
An earnings beat with an asterisk
Not every line impressed. Earnings per share of $9.11 came in well above the $2.89 consensus, but the total included a $99 billion gain from equity stakes in SpaceX and Anthropic — excluding it, operational earnings appear closer to $2.85 per share. The company also carries the overhang of an $85 billion fundraising plan from June, including a $40 billion at-the-market share offering set to begin in Q3.
Sources: CNBC, Business Insider
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