Google parent Alphabet reported Q2 2026 earnings Wednesday after the close, revenue of $119.8 billion, up 24 percent year over year, beating the $116.93 billion consensus.
Google Cloud grew 82 percent to $24.8 billion. The headline EPS was $9.11, but $99 billion of that came from unrealized gains on equity securities, a one-time accounting item. Adjusted EPS was $2.85, a slim miss of the $2.89 estimate. The stock fell in after-hours trading.
The reason investors were unhappy despite the strong top line: capital expenditures hit a record $44.9 billion in the quarter and the company raised its full-year capex guidance to $195 to $205 billion, up from $180 to $190 billion previously.
The spending pushed free cash flow negative for the first time in Alphabet's history as a public company at negative $5.9 billion. Google is betting $200 billion on AI infrastructure in 2026. The market's reaction is essentially a question about when that bet pays off.
The bright spots are real. Google Cloud's backlog swelled by more than $50 billion sequentially to $514 billion.
Cloud operating margin more than tripled to 35.6 percent. Search revenue grew 17 percent to $63.3 billion. Google's Antigravity AI coding tool has 2.4 million weekly active users.
CEO Sundar Pichai described the company as "firing on all cylinders." The stock did not agree Wednesday night.