Google posts blockbuster quarter but Wall Street is worried about the bill

Alphabet reported a strong June quarter led by record Google Cloud growth and higher advertising revenue. Even so, investors focused on its bigger AI spending plan and the delayed Gemini rollout.

In Short

• Alphabet's Q2 revenue hits $119.8bn, beating estimates
• Google Cloud revenue surges 82% driven by AI demand
• AI infrastructure spending raised to $205bn, shares drop 3%

Alphabet, Google's parent company, reported a blockbuster June quarter on Wednesday as its cloud business posted record growth amid surging demand for artificial intelligence (AI). However, the strong results were overshadowed by the company's decision to raise its AI infrastructure spending to as much as $205 billion, sending its shares down about 3% in extended trading.

The technology giant reported total revenue of $119.8 billion for the April-June quarter, comfortably beating Wall Street estimates of $116.9 billion. Advertising revenue, which remains Google's biggest business, also came in ahead of expectations at $81.6 billion, compared with analysts' estimate of $81.1 billion.

Adjusted earnings stood at $2.85 per share, slightly below Wall Street expectations of $2.89 per share.

GOOGLE CLOUD STEALS THE SHOW

The biggest highlight of the quarter was Google Cloud, which delivered its strongest growth ever.

Revenue from the cloud business jumped 82% year-on-year to $24.8 billion, far ahead of analysts' expectations of around 64% growth.

The sharp rise was driven by businesses around the world rushing to build, train and deploy AI applications, increasing demand for cloud computing services. The results further strengthen Google's position as the world's third-largest cloud services provider after Amazon Web Services (AWS) and Microsoft Azure.

The company also recognised revenue from direct sales of its Tensor Processing Units (TPUs) for the first time during the quarter. TPUs are Google's in-house AI chips designed to compete with Nvidia's GPUs. However, Chief Financial Officer Anat Ashkenazi said most revenue from these business agreements is expected to come next year.

GOOGLE TO SPEND UP TO $205 BILLION ON AI

While the quarterly results were strong, investors focused on one announcement made during the earnings call.

Ashkenazi said Alphabet now expects capital expenditure of between $195 billion and $205 billion as it continues to expand its AI infrastructure.

The latest guidance is significantly higher than the company's earlier estimate of $180 billion to $190 billion.

She said Google has expanded its AI capacity significantly over the past three years, but demand continues to outpace available infrastructure.

"We have increased our capacity quite significantly over the past three years. The demand still outpaces that investment," Ashkenazi said, adding that faster-than-expected capacity additions also contributed to the higher spending plan.

She also reaffirmed that Alphabet expects another significant increase in capital expenditure in 2027.

WHY DID THE STOCK FALL?

Despite reporting stronger-than-expected revenue, Alphabet shares fell about 3% in extended trading after the company announced the higher AI spending plan.

The market reaction reflected growing concerns over the massive investments being made by Big Tech companies to stay competitive in AI.

Adding to investor worries, Google reported negative free cash flow for the first time in its history, burning $5.9 billion during the quarter.

Thomas Monteiro, senior analyst at Investing.com, said the higher capital spending after a negative cash flow quarter is likely to concern investors.

"As long as revenue keeps accelerating, investors will tolerate it. But capital has a real cost again, and the room for error is shrinking every quarter," he said.

GEMINI DELAY REMAINS A KEY CONCERN

Another major question during the earnings call was Google's progress in AI models.

The company had delayed the launch of Gemini 3.5 Pro, its flagship AI model that was expected to strengthen Google's position in AI coding and autonomous AI agents.

The delay has raised concerns that Google may be losing ground to rivals such as OpenAI, Anthropic and fast-growing Chinese AI companies, all of which have been releasing new enterprise-focused AI models at a rapid pace.

Analysts repeatedly questioned CEO Sundar Pichai on whether Google could remain competitive at the cutting edge of AI development.

Responding to those concerns, Pichai acknowledged that Google still has areas where it needs to improve.

"We've had clearly frontier models. There are many attributes on which we are still at the frontier. There are areas where we've acknowledged we need to improve; coding and agentic coding is an example of that," he said.

Pichai added that while Google continues testing Gemini 3.5 Pro, it has already started training Gemini 4 and is directing significant computing resources towards the next generation of models.

"We are both very committed and very confident of being at the frontier for the next generation," he said.

AI SPENDING RACE INTENSIFIES

Google's results underline how quickly spending on AI infrastructure is rising across the technology industry.

The company said demand for cloud computing capacity continues to exceed supply as enterprises race to adopt AI.

Alphabet is one of several technology companies making massive investments in AI. Big Tech firms are expected to spend well over $700 billion this year on AI infrastructure, while Morgan Stanley estimates the figure could exceed $1 trillion next year.

For now, Google's cloud business continues to benefit from that spending boom. However, investors will be watching closely to see whether the company's massive AI investments, rising capital expenditure and delayed Gemini rollout translate into stronger long-term earnings.

- Ends