Alphabet reported second-quarter revenue of $119.8 billion, a 24% increase year over year, surpassing expectations of $116.9 billion. Earnings per share were $9.11, significantly above the consensus estimate of $2.89, but this figure included a substantial $99 billion from equity investment gains related to SpaceX and Anthropic.
Excluding this gain, operational earnings were closer to $2.85 per share, which likely contributed to the perception of a miss on the bottom line. Operating income was strong at $40.77 billion, with operating margins improving by 1.6 percentage points from the previous year. Despite these positives, Alphabet's shares fell over 3% in after-hours trading, continuing a downward trend since mid-May.
Investor sentiment has shifted due to concerns over escalating AI-related capital expenditures, which are now projected to be between $195 billion and $205 billion for 2026, up from earlier estimates. This increase is aimed at enhancing capacity for AI offerings, but comes at a time when free cash flow has turned negative.
Additionally, Google Search revenue growth of nearly 17% fell short of expectations, raising concerns about monetization strategies for AI-enhanced search results. CEO Sundar Pichai noted that AI features are driving increased search usage, with over 1 billion monthly active users engaging with AI Mode.
However, the ongoing $85 billion fundraising effort, including a $40 billion at-the-market offering, adds to the stock supply and may limit upside potential. Despite these challenges, Alphabet's strong performance in Google Cloud and YouTube advertising, along with its innovative AI strategies, suggest long-term growth potential.
Analysts maintain a positive outlook, reiterating a $400 price target while advising caution in the short term due to current market conditions