Alphabet slips after AI growth comes with a bigger spending plan

Alphabet shares fell more than 3% in after-hours trading Wednesday after the Google parent reported second-quarter results that showed strong AI demand, but also a higher spending bill to support it. For everyday investors, the tension is clear: AI is helping revenue grow, while the infrastructure needed to run it is eating up more cash.

The company reported second-quarter revenue of $119.8 billion, up 24% from a year earlier and above the $116.9 billion expected by analysts, according to LSEG data cited by CNBC. Alphabet posted earnings per share of $9.11, far above the $2.89 consensus estimate compiled by LSEG, but CNBC said that figure included a $99 billion contribution from equity investment gains tied to stakes in SpaceX and Anthropic.

Backing out that gain, CNBC estimated Alphabet’s operating earnings were closer to $2.85 per share, which helps explain why investors treated the quarter as a bottom-line miss. Operating income was stronger than expected at $40.77 billion, and operating margin expanded by 1.6 percentage points from a year earlier, CNBC reported.

The bigger concern was spending. Alphabet raised its 2026 capital expenditure forecast to a range of $195 billion to $205 billion, up from the $180 billion to $190 billion range it gave in April, according to CNBC. Capital expenditure, often shortened to capex, means money spent on long-term assets such as data centers, chips and networking gear.

Alphabet executives said the added spending is meant to bring on more capacity for AI products, CNBC reported. The company also reaffirmed that capex would “increase significantly in 2027,” according to the report. That matters because CNBC said Alphabet’s quarterly free cash flow has turned negative, meaning cash left after operating expenses and capital spending was below zero for the period.

Google Search, Alphabet’s most important business, also came in below expectations, according to CNBC. Search revenue still grew nearly 17% from a year earlier, but the miss landed in a segment where investors are watching closely for signs that AI-generated answers could change how Google makes money from queries.

CEO Sundar Pichai pointed to increased usage from AI features in Search. He said AI Mode, which can be accessed through the search bar, has topped 1 billion monthly active users since its global expansion last October. Pichai also said AI Mode and AI Overviews, the AI-generated summaries that appear above traditional search results, are increasing total search queries and sending billions of clicks to websites each week.

There were clear bright spots. CNBC reported that Google Cloud revenue growth accelerated to 82% year over year, up from 63% growth in the first quarter and 48% growth in the fourth quarter of 2025. Google Cloud backlog rose to $514 billion from $460 billion in the prior quarter, according to CNBC.

Alphabet also reported strong AI product usage, CNBC said. The Gemini app reached 950 million monthly active users, with daily active users tripling from a year earlier. Gemini model APIs are processing about 22 billion tokens per minute, up from more than 16 billion in the prior quarter. A token is a basic unit of data used by AI systems to process text and other inputs.

Pichai said Alphabet is seeing strong demand for its Gemini Flash models because they balance performance and cost. He also said the company wants to offer models across multiple price points, according to CNBC, as competition increases in both high-end and lower-cost AI tools.

Alphabet’s stock had already been under pressure before the report. CNBC said shares had been trending lower since closing at a record $402.62 on May 13, after a rally tied to first-quarter results. The latest quarter gave investors evidence that AI adoption is real, but also showed that proving the payoff may require more spending first.

This story draws on original reporting from CNBC.