Alphabet delivered a quarter that looked exceptional on almost every line — until investors saw the bill. The company’s Alphabet Q2 earnings report, released after the bell on Wednesday, showed earnings per share of $9.11 on revenue of $119.8 billion, comfortably ahead of Wall Street’s expectations. But the celebration was short-lived. By Thursday morning, shares had dropped 2.8% in premarket trading after the company disclosed a sharp increase in planned capital spending.
Summary
Key takeaways
- Alphabet posted Q2 EPS of $9.11 on revenue of $119.8 billion, beating analyst forecasts.
- Google Cloud revenue surged 82% year over year to $24.77 billion, well ahead of the expected $24.56 billion.
- Advertising revenue reached $81.63 billion, topping the consensus estimate of $81.12 billion.
- Capital expenditure guidance was raised to $195–$205 billion for the year, up from the prior range of $180–$190 billion.
- Google delayed its Gemini 3.5 Pro AI model over capability concerns and is developing a new efficiency chip codenamed Frozen v2.
Alphabet’s Strong Q2 Financial Performance
The headline numbers were hard to argue with. Revenue climbed 24% from the $96.4 billion Alphabet reported in the same quarter a year ago, and the company beat analyst projections on both earnings and total revenue. Remaining performance obligations — essentially the pipeline of contracts still to be fulfilled — hit $514 billion, well above the $488.1 billion analysts had projected. That figure signals sustained enterprise demand, not just a one-quarter surge.
Cloud and advertising revenue growth
The standout number was Google Cloud. Revenue for the division reached $24.77 billion, an 82% jump from the $13.6 billion it generated in the same period last year and above the analyst consensus of $24.56 billion. Last quarter, the cloud business had just crossed the $20 billion threshold for the first time. The acceleration is notable: analysts had expected roughly 64% year-over-year growth, so the actual result blew past even optimistic models.
“Q2 was an amazing quarter, with Alphabet revenues growing 24% year over year and Google Cloud revenues accelerating to 82% growth, driven by demand for AI infrastructure and AI solutions,” CEO Sundar Pichai said.
Advertising held its own too. Revenue from Google’s ad business came in at $81.63 billion, beating the $81.12 billion analysts had forecast. YouTube advertising rose 13% to $11.06 billion, topping a StreetAccount estimate of $10.81 billion. Search revenue grew 17% to $63.3 billion — slightly behind expectations of $63.4 billion, a small miss that Gene Munster of Deepwater Asset Management flagged as a factor in muting early investor enthusiasm. Google’s finance chief Anat Ashkenazi also warned analysts to brace for tougher year-over-year comparisons in Q3 search, as the company begins lapping a period of strong search acceleration that started in the third quarter of last year.
One factor that significantly amplified reported profits was a $99.03 billion gain on equity securities, which contributed to $97.98 billion in “other income” for the quarter. That figure helped push Alphabet’s total quarterly profit to $112.11 billion, up 298% year over year. The gain reflects Alphabet’s stakes in companies including Anthropic and SpaceX, though SpaceX shares have since declined nearly 33% from where they stood at the end of the second quarter.
Capital Expenditure Increase and Market Reaction
The spending update is what rattled markets. Alphabet raised its full-year capital expenditure guidance to between $195 billion and $205 billion, up from the prior range of $180 billion to $190 billion. Analysts polled by Visible Alpha had been expecting around $188 billion. The company spent $44.9 billion in capex during Q2 alone — a figure that grew 100% year over year and came in just slightly ahead of estimates.
Updated capital expenditure guidance
Ashkenazi attributed the increase to an acceleration in capacity delivery driven by growing demand. “The increase in the range is primarily due to an acceleration in the delivery of capacity to meet growing demand,” she told analysts. About 60% of infrastructure investment went toward servers, with the remaining 40% going to data centers and networking equipment. Ashkenazi also disclosed that Alphabet plans to expand its use of third-party cloud capacity in Q3 as a short-term bridging measure while internal capacity continues to ramp up — a move that will create “modest margin pressure in the near term.”
That strategy builds on an existing arrangement with SpaceX to rent Nvidia GPUs for AI workloads at $920 million per month, according to CNBC. CoreWeave and Nebius shares jumped 4% and 5% respectively in extended trading after Ashkenazi’s comments, reflecting investor optimism around third-party providers who stand to benefit from the arrangement.
Impact on stock price
Despite the revenue beats, Alphabet stock fell 2.8% in premarket Thursday. The reaction captures a tension that has been building across the AI sector: the cost of staying competitive at the frontier of AI infrastructure is growing faster than many investors expected, and the returns remain uneven and hard to time.
That said, Alphabet has held up better than several peers. Over the prior three months, the stock had risen roughly 4%, while Amazon was roughly flat, Meta had declined nearly 6%, and Microsoft was down around 5%. The relative outperformance reflects market confidence in Google’s cloud acceleration, even as the spending trajectory raises questions about near-term margins.
AI Development and Technology Advances
Alphabet’s AI story is moving fast — and not always in a straight line. Alongside the financial results, two separate AI-related developments added texture to the quarter’s narrative, one cautionary and one potentially constructive.
Delay of Gemini 3.5 Pro AI model
According to Bloomberg, Google has delayed the release of its Gemini 3.5 Pro model due to concerns about its capabilities relative to competing models. A Google spokesperson told Yahoo Finance that the company is “currently testing 3.5 Pro, an upgraded Flash model, and other models with partners” and described the company as “productively engaged with the US government.” The delay underscores the competitive pressure surrounding AI model releases — in a race where a gap of even a few months can shift enterprise customer decisions.
Pichai, meanwhile, is already signaling ambition well beyond the current generation. On the earnings call, he described Gemini 4 as “a very ambitious effort,” saying Google is applying significant compute and resources toward competing at the frontier level when that model eventually arrives. He also said the company plans to release new models almost every month as the Gemini family scales. The Gemini App now has 950 million active users and processes 22 billion API tokens per minute, up from 16 billion last quarter.
Frozen v2 chip development
On the hardware side, The Information reported earlier this week that Google is developing a new AI chip codenamed Frozen v2. The chip is designed to increase efficiency when running Gemini by embedding parts of the model directly into the chip architecture, which would cut processing time. Details about the release date and full specifications remain unclear, but the development points to a strategy of reducing dependence on external GPU suppliers while lowering the per-unit cost of AI inference at scale.
Taken together, the Gemini 3.5 Pro delay and the Frozen v2 development tell a coherent story: Google is navigating a period where the pace of AI capability development is genuinely uncertain, and where hardware investment has become as strategically important as model architecture. The company is betting that building more efficient internal chips will eventually ease the spending pressure that spooked markets Thursday morning — but that payoff remains ahead, not behind.
FAQ
How did Alphabet perform financially in Q2 2026?
Alphabet reported earnings per share of $9.11 on revenue of $119.8 billion, beating Wall Street expectations on both measures. Total revenue grew 24% year over year.
What was the growth rate of Google’s cloud revenue in Q2 2026?
Google Cloud revenue increased 82% year over year to $24.77 billion, significantly outpacing analyst forecasts of around $24.56 billion and up from $13.6 billion in the same quarter a year earlier.
Why did Alphabet’s stock fall in premarket trading despite strong earnings?
The stock fell 2.8% in premarket trading after Alphabet raised its full-year capital expenditure guidance to between $195 billion and $205 billion, up from the prior range of $180 billion to $190 billion — well above analyst expectations of around $188 billion.
What caused the delay in Google’s Gemini 3.5 Pro AI model?
According to Bloomberg, Google delayed the Gemini 3.5 Pro model over concerns about its capabilities compared to other leading AI models. The company said it is continuing to test the model with partners.
Article produced with the assistance of artificial intelligence and reviewed by the editorial team.
