Alphabet shares fell Wednesday evening after the Google parent reported good, but not great second-quarter results. While artificial intelligence adoption is boosting top-line growth, it’s also driving higher levels of capital spending. And that doesn’t seem to be changing any time soon. Revenue in the second quarter increased 24% year over year to $119.8 billion, well ahead of the $116.9 billion expected, according to LSEG data. Earnings per share came in at $9.11. That’s way above the LSEG-compiled consensus estimate of $2.89. However, the result included a massive ($99 billion) contribution from equity investment gains, driven by its SpaceX and Anthropic stakes. Excluding that gain, Alphabet’s operational earnings appear to be closer to $2.85 per share. That’s why the Street is likely considering this a miss on the bottom line. However, operating income came in better than expected at $40.77 billion, with operating margins expanding 1.6 percentage points from a year ago. Shares of Alphabet are down over 3% in the after-hours session. That continues a downward trend that began in mid-May, after the stock closed at a record high of $402.62 on May 13. It had ascended to those heights after strong first-quarter results in late April offered proof that its AI investments were paying off. But that post-earnings advance in the spring has now evaporated. In the intervening months, the market grew more skeptical of spiraling AI spending from the hyperscalers — and Alphabet’s recent bond and equity offerings contributed to that attitude shift. Plus, a handful of AI researchers leaving for rivals in June and delays to its new flagship model added to the questions surrounding Alphabet entering the second-quarter print. GOOGL YTD mountain Alphabet’s year-to-date stock performance. Bottom line Alphabet delivered a good quarter on the AI demand side of the equation. However, the full report came with enough shortfalls that the stock’s slide in extended trading isn’t surprising. The market isn’t in a forgiving mood. For starters, Alphabet’s underlying operating earnings came up short. Perhaps even more frustrating for investors already concerned about hefty data center spending, the team upped its capital expenditure outlook for the year. It now expects to spend between $195 billion and $205 billion on capex in 2026, up from the $180 billion to $190 billion range offered in April (which itself was an increase from its early February guidance). While this latest increase is to accelerate the delivery of capacity needed to meet demand for the company’s AI offerings, it’s still hard to hear at a time in which quarterly free cash flow has turned negative. Moreover, Alphabet executives reaffirmed that capex would “increase significantly in 2027.” Another smudge on the numbers: Google Search revenue came up short versus expectations. Sure, that still represents robust year-over-year growth of nearly 17%, but a miss is a miss. Now consider that it’s a miss in…
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