Alphabet lifts capex guide to $205bn as Google Cloud jumps 82%

Alphabet went into its second-quarter results on Wednesday carrying one question louder than the rest: whether the tens of billions it is funnelling into AI infrastructure has started to earn its keep. Judged by the after-hours share price, the answer was not yet.

The company reported revenue of $119.8bn for the three months to June, up 24% from $96.4bn a year earlier and comfortably ahead of forecasts.

Google Cloud did the heavy lifting, with revenue climbing 82% to $24.8bn, operating income more than tripling to $8.8bn, and its margin widening to about 36%. Group operating margin edged up to 34% from 32%.

That extends a streak that had Alphabet closing in on Nvidia as the world’s most valuable company, and it slots into a Big Tech capex cycle now running past $650bn a year. Cloud backlog, the contracted work Google has yet to book, rose to $514bn from $490bn.

Going in, the pressure was explicit. Bloomberg framed the quarter as a test of whether the spending pays off, and Alphabet was hardly alone in facing it, with investors weighing the same question at Tesla and across the rest of the Magnificent Seven the same week.

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The spending, not the growth, is what rattled them. Alphabet lifted its full-year capital-expenditure guidance to as much as $205bn, up from a prior range of $180bn to $190bn, and said quarterly capex had roughly doubled from a year earlier to $44.9bn.

Even $205bn does not cover it. Alphabet said it would keep expanding rented, third-party capacity as a bridge while its own data centres come online, a measure of how quickly demand is outrunning what it can build.

The bill pushed free cash flow to negative $5.9bn, the first quarterly outflow in nearly two decades.

Shares fell about 5% in extended trading despite the revenue beat, part of a now-familiar rhythm this earnings season of clean beats undone by capex lines that land heavier than expected.

The scale is the story. Alphabet is on course to spend more on capital investment in a single year than it books in net income over a comparable stretch, funding the build largely from a search and advertising business growing far more slowly. Analysts have started asking when, exactly, that gap closes.

The backlog is the counterargument the bulls reach for. A book of $514bn in contracted, not-yet-recognised revenue suggests the capacity being built already has buyers waiting; the bearish read is that it is a promise Alphabet still has to fund and deliver while the meter runs.

What both sides agree on is that the answer hinges on cloud becoming self-sustaining before the capex wave crests.

The headline profit figure did not settle the argument. Net income came in at $112.1bn, close to quadruple a year earlier, but roughly $98bn of that was an unrealised paper gain on Alphabet’s stake in SpaceX. Strip it out and the underlying number looks a good deal more ordinary.

The core ad engine held. Search revenue rose 17% to $63.3bn and YouTube advertising 13% to $11.1bn, while the Gemini app reached 950 million monthly active users and Alphabet’s first-party model APIs processed some 22 billion tokens a minute.

Sundar Pichai said AI features in Search were driving incremental queries while still sending billions of clicks to websites each week, and that AI Mode had passed 1 billion monthly users.

To pay for the build, Alphabet has already leaned on a record $85bn equity raise and a debut yen bond. CFO Anat Ashkenazi told investors no further equity offerings were planned beyond a $40bn at-the-market programme starting this quarter.

For all the noise, the results left open the one question they were meant to answer. The AI spending is clearly producing growth.

When it begins paying for itself, and how much more Alphabet is willing to spend while it waits to find out, is still unresolved.