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Google parent company Alphabet posted 24% revenue growth year-over-year in the second quarter, fueled by its booming cloud business, but concern over the company’s heavy spending on artificial-intelligence infrastructure dampened investors’ enthusiasm.
Alphabet’s sales came in at $119.8 billion, exceeding analyst expectations. Its cloud business brought in $24.8 billion, and its search business generated $63.3 billion. Net income for the April-June period was $112.1 billion, also ahead of analyst expectations, primarily driven by its gains in other companies’ stock that Alphabet owns.
But as the AI build-out continues, the company increased its estimate for this year’s capital expenditures by $15 billion—to a new range of $195 billion to $205 billion—and Chief Financial Officer Anat Ashkenazi said free cash flow, which turned negative in the second quarter, would remain under pressure because of “investments in technological infrastructure.”
Alphabet’s shares were dropped more than 4% in after-hours trading.
“Google comes out with a solid quarter, beating consensus expectations, but not by enough,” Brian Mulberry, who manages a portfolio at Zacks Investment Management that includes Google stock, said in a statement. “This time the cloud revenue was good but just not as good.”
Google in recent months has been trying to catch up in the AI race. It released a model in November, called Gemini 3, that was competitive with top offerings from OpenAI and Anthropic, but since has fallen behind the frontier.
“There are many areas where we are still at the frontier,” Alphabet Chief Executive Sundar Pichai said on a call with analysts and investors. “There are areas where we need to improve.”
Meanwhile, the company’s booming cloud business has been buoying its stock. In the second quarter, its cloud backlog grew to $514 billion, up from $460 billion in the prior quarter.
To help finance the build-out of its data centers, Google last month announced an $85 billion equity raise. The company plans up to $190 billion in capital expenditures this year, largely to support its AI efforts. It reported $44.9 billion in capex for the second quarter.
Google’s stock fell 2% Friday after Bloomberg reported that the company had delayed the release of its newest powerful flagship model, Gemini 3.5 Pro, because it struggled to meet internal goals. Stocks across the tech industry dipped that day, in part because of the release of a breakthrough open-source model by Chinese company Moonshot AI. In June, Google stock took a hit after two key researchers left the company for Anthropic.
On the call with analysts and investors, Pichai said Gemini 3.5 Pro is in testing and that the company has begun pretraining on its next generation of models, Gemini 4. He added that nearly 90% of the Fortune 100 are using Gemini’s business offering and the company’s cloud-security infrastructure.
On Tuesday, Google announced three new cheaper versions of its Gemini model—3.6 Flash; 3.5 Flash-Lite; and 3.5 Flash Cyber, which is geared toward cybersecurity. The announcement didn’t include a new Pro model, which hasn’t been updated since February. Since then, other companies have dominated the model development race with Anthropic’s release in June of its cutting-edge Mythos 5 and Fable 5 models, and OpenAI’s announcement this month of its latest model, GPT-5.6.
Heading into Wednesday’s earnings, analysts were looking for an indication of how consumer AI adoption is affecting web search, the central pillar of Google’s advertising business.
Search revenue grew by 17% year-over-year, in line with analyst expectations. The company said it was fueled by Google’s AI features including the Gemini app, which now has 950 million monthly active users.
Google last year launched “AI Mode,” which searches and responds to users like a chatbot and with fewer links. In 2024, it rolled out “AI Overviews,” which provides a custom summary of search results. Google said in May that AI Overviews now has more than 2.5 billion monthly users.
The company recently combined AI Overviews and AI Mode to streamline the Search experience, Pichai said on the call.
Analysts have raised questions about whether Google has figured out how to monetize those answers as effectively as it does conventional search results, and whether it can prevent other chatbots from eating into its search monopoly.
The integration of AI answers into search can reduce clicks to websites, and some businesses are reconsidering their relationships with the company.
Google recently announced a $75 million AI research partnership with the independent movie studio A24, the film company behind the box office hit “Backrooms.”
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Write to Meghan Bobrowsky at [email protected] and Tina Li at [email protected]
