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Wall Street’s tolerance for artificial-intelligence investment might seem to have no limits, but Google parent Alphabet found one Wednesday: $200 billion.
After the $4 trillion company raised its estimated capital expenditures to a new range that extends past that figure while reporting its second-quarter earnings, investors punished the stock, which fell more than 4% in after-hours trading before recovering slightly.
The selloff ensued despite otherwise strong results that included 24% year-over-year revenue growth, to $119.8 billion for the quarter, and 82% growth in its cloud division, which booked $24.8 billion. Both figures beat analysts’ estimates. The company also posted $98 billion in other income, primarily driven by its gains in other companies’ stock that Alphabet owns.
But all that was overshadowed by concern over Alphabet’s ever-increasing spending on AI infrastructure and its descent into negative free cash flow—a trend that Google’s finance chief said would continue as the company deepens its investments in AI.
“The 200 was the do-not-cross line,” said Brian Mulberry, who manages a portfolio at Zacks Investment Management that includes Google stock, referring to Google’s revised capex estimates. He also expressed frustration about what he said was Google’s lack of explanation for how its AI spending plans would translate into more revenue for the company.
“You can’t be offloading this much cash and not talk about it,” he said.
Youssef Squali, lead internet analyst at Truist Securities, said he had been expecting Google to maintain its previous capex guidance of $180 billion to $190 billion for the year. Instead, the company raised it to a new range of $195 billion to $205 billion.
“Working off 205 puts 2027 in pretty scary territory,” he said, adding his assumption was that the top end of Google’s 2027 capex would be in the range of $250 billion to $255 billion. Now, he said it seems more likely to come in between $270 billion and $280 billion—or even higher.
“I think the market needs to digest that for a little bit,” he said.
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 them.
“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.
“That alone speaks to the pent up demand for compute,” Squali, the Truist analyst, said. “Operationally, they’re executing, honestly, flawlessly on the opportunity here both around search monetization, and the integration of AI and cloud growth.”
To help finance the build-out of its data centers, Google last month announced an $85 billion equity raise. 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.
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Write to Meghan Bobrowsky at [email protected] and Tina Li at [email protected]
