Alphabet Raises 2026 Capex Forecast to $205 Billion as Cloud Revenue Jumps 82%

Alphabet reported second-quarter revenue of $119.80 billion on Wednesday, topping analyst expectations of $116.93 billion, but shares fell more than 3% in extended trading after the Google parent raised its full-year capital expenditure forecast to as much as $205 billion — a figure that unsettled investors already wary of runaway AI infrastructure costs.

The revised spending range of $195 billion to $205 billion represents a significant step up from the $180 billion to $190 billion guidance issued in April, which itself was an increase from early February guidance. Analysts polled by Visible Alpha had been projecting roughly $188 billion in capital spending for the year.

"The increase in the range is primarily due to an acceleration in the delivery of capacity to meet growing demand," Chief Financial Officer Anat Ashkenazi told analysts on the company's earnings call. She added that Alphabet remains "in a supply-constrained environment," a characterization she noted the company has offered for multiple consecutive quarters.

Second-quarter capital expenditures grew 100% year over year to $44.9 billion, while Google Cloud revenue surged 82% to $24.8 billion — a result that stood out as one of the clearest indicators of AI-driven demand. Quarterly free cash flow turned negative during the period, adding another layer of complexity to the spending narrative.

On an adjusted basis, earnings per share came in at $2.85, just below the LSEG consensus estimate of $2.89. The reported earnings per share of $9.11 reflected a $99 billion contribution from equity investment gains tied to Alphabet's stakes in SpaceX and Anthropic, which inflated the headline figure.

Google Search revenue grew approximately 17% year over year, in line with expectations — though some analysts had anticipated a more decisive beat in Alphabet's highest-revenue segment. CEO Sundar Pichai credited AI features for driving incremental search engagement, noting that AI Mode has surpassed 1 billion monthly active users since its global expansion last October.

"Just like AI Overviews, AI Mode is driving an incremental increase in search queries overall, and we are now sending billions of clicks to websites every week through AI features in Search," Pichai said.

The Gemini app now counts 950 million monthly active users and can process 22 billion tokens per minute, the company said. Pichai also confirmed that Alphabet is already directing significant compute resources toward Gemini 4, describing it as "a very ambitious effort" aimed at competing at the frontier level when the model eventually launches. The company plans to release new models on roughly a monthly cadence going forward.

To bridge supply constraints in the near term, Ashkenazi said Alphabet plans to expand its use of third-party cloud capacity in the third quarter. She cautioned that the strategy "will create modest margin pressure in the near term." The disclosure sent shares of CoreWeave and Nebius up 4% and 5%, respectively, in after-hours trading.

Pichai framed the third-party leasing approach in terms of long-term economics. "The incremental opportunity they are bringing to us, while a short-term cost over a few months may be very high, in the lifetime of the deal, as we bring more capacity on, is highly ROI positive," he said.

Alphabet executives also confirmed that capital expenditures are expected to "increase significantly in 2027," reinforcing that the current investment cycle is far from its peak.

On the fundraising front, Ashkenazi said Alphabet is "not planning to go back to the equity markets," aside from a $40 billion at-the-market offering program that will be used primarily to satisfy tax obligations tied to employee equity grants. That program begins in the third quarter, meaning additional share supply will weigh on the stock in the months ahead.

With the company signaling continued heavy investment, Wall Street will be watching whether AI-driven demand — in Cloud, Search, and the Gemini ecosystem — generates returns sufficient to justify the scale of spending Alphabet has committed to through at least the end of 2027.

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