[NEW YORK] Alphabet again raised already sky-high estimates for capital spending in 2026, telling investors that expenses may top US$200 billion as it races to build the computing power necessary to fuel its artificial intelligence ambitions.
The Google parent projected capital expenditures of US$195 billion to US$205 billion in 2026, up from a previous estimate of as much as US$190 billion above the roughly US$186 billion that analysts had estimated.
The higher guidance reflects the company’s efforts to accelerate its expansion of AI computing capacity and book more revenue from cloud-computing clients.
The outlook threatens to intensify investor scrutiny of Alphabet’s AI investments.
Wall Street has been scouring for evidence that the company’s massive bets on the technology are generating new growth rather than weighing on profits.
As the first major US technology company to report earnings this season, Alphabet’s results stand to shape expectations for a sector that has collectively committed hundreds of billions of dollars to AI infrastructure.
“The new raise in capex does not sit well for Alphabet,” Investing.com senior analyst Thomas Monteiro said.
“Add to that an increasing rates environment and a continuous supply demand crunch in AI infrastructure, and the notion that the company would fund itself with cash flows forever might be starting to fade.”
Alphabet shares fell 4 per cent in after-hours trading on Wednesday (Jul 22). The stock closed at US$342.09 per share in New York.
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The spending guidance overshadowed what were otherwise solid second-quarter results for the company.
Cloud revenue totalled US$24.77 billion for the period ended Jun 30, up 82 per cent from a year earlier and above the US$22.46 billion that analysts had expected.
The company’s cloud backlog, a measure of contracted work that has not yet been recorded as revenue, grew to US$514 billion, up from roughly US$460 billion a quarter earlier.
The cloud results were “powered by strong demand for AI infrastructure and AI solutions”, chief executive officer Sundar Pichai said in the call with analysts late on Wednesday.
Google Cloud has emerged as one of the clearest tests of whether Alphabet’s AI spending can deliver financial returns. Though it still trails behind Amazon Web Services and Microsoft Azure, the unit has become one of Alphabet’s fastest-growing businesses, fuelled by demand from AI startups and enterprise customers seeking the infrastructure needed to develop and deploy AI applications.
While the higher spending outlook stands to fuel concerns from investors, Monteiro said, the cloud sales beat is at least a clear sign that the company’s investments are “converting into fast-growing, profitable revenue, with contracted deals coming online the moment capacity is built”.
Google said the majority of its cloud backlog involves typical contracts with “a broad mix of customers” and that it expects to recognize more than half of it as revenue over the next 24 months.
The company said on Wednesday that capital expenditures were US$44.92 billion in the second quarter, which also exceeded Wall Street’s expectations of US$44.15 billion.
Total sales, excluding partner payouts, were US$103.6 billion in the second quarter, surpassing the US$101.07 billion average analyst estimate. Net income was US$9.11 a share, well above Wall Street’s forecasts.
Search advertising generated US$63.27 billion in sales, falling slightly below estimates.
The unit remains the backbone of Google’s advertising business and has so far weathered competition from AI chatbots. The longer-term question for investors is whether Gemini can help Google defend its position in search as the way people interact with information changes.
Monthly active users of Google’s Gemini AI system totalled 950 million, above estimates but below first quarter totals.
“Gemini is now within a whisker of becoming Google’s third different one billion-user consumer AI product, alongside AI Overviews and AI Mode,” Emarketer principal analyst Nate Elliott said.
“On the enterprise side, AI demand is driving enormous growth in the cloud business.”
Google has continued to expand the Gemini family, introducing new models such as Gemini 3.6 Flash designed to improve efficiency and support enterprise AI applications.
Yet delays to Gemini 3.5 Pro have raised questions about how Google plans to position the model across consumer products and developer tools, including in AI coding, where rivals Anthropic and OpenAI have gained traction with developers.
At the same time, Pichai sought to shift attention to Gemini 4, saying on the call that he was encouraged by its progress and describing it as a much larger, next-generation frontier model that Google is prioritising in training.
The video platform YouTube reported US$11.1 billion in revenue, beating analysts’ estimates.
The unit remains one of Alphabet’s strongest businesses, as YouTube expands its reach across connected TVs, creator-led programming and new AI-powered tools for viewers and creators.
“YouTube is a little better than the past, breaking a multi-quarter losing streak, but it too feels like it should be doing better in this environment,” said Brian Mulberry, chief market strategist at Zacks Investment Management.
Alphabet’s investment portfolio has also become a source of upside for the company, with stakes in companies including Anthropic and SpaceX.
Gains in the value of Alphabet’s investments totaled nearly US$100 billion for the quarter, sending net income soaring.
Alphabet’s Other Bets division, which houses long-term ventures including life sciences company Verily and self-driving car unit Waymo, generated US$382 million in revenue, falling below estimates.
Alphabet has continued pouring resources into Waymo, while seeking to give some of its other experimental ventures more independence as standalone companies, Bloomberg has reported. BLOOMBERG
