Alphabet Q2 profit quadruples to $112 billion on AI investment gains, but free cash flow turns negative as capex hits $190 billion
Google Cloud revenue surged 82% to $24.8 billion, far outpacing forecasts, while net income quadrupled to $112.1 billion on investment gains. But free cash flow turned negative as AI infrastructure spending soared.
Alphabet reported second-quarter results on Wednesday that showcased the twin forces reshaping the company: explosive cloud growth driven by artificial intelligence and a historic level of capital spending that pushed free cash flow into negative territory.
Cloud revenue accelerates
Google Cloud revenue rose 82% to $24.8 billion in the quarter ended June, accelerating from the 63% growth recorded in the preceding three months. Analysts had expected a 64% increase, according to LSEG data. The unit, which trails Amazon Web Services and Microsoft in market share, has benefited from enterprises racing to secure cloud capacity for AI model development and training. Major deals with firms including Anthropic contributed to the performance.
- Actual
- 82 %
- Analyst estimate
- 64 %
Total revenue climbed 24% to $119.8 billion, above the $116.5 billion consensus forecast. The core search business remained a bright spot, with AI features such as AI Overviews and AI Mode driving higher query volumes and deeper user engagement. Google has expanded advertising within those AI-powered search experiences.
Profit lifted by investment gains
Net income quadrupled to $112.1 billion from $28.2 billion a year earlier, boosted by unrealised gains on Alphabet's stakes in other AI-related companies. The company valued those investments, which include positions in SpaceX and Anthropic, at about $99 billion. SpaceX went public roughly a month ago.
Our A.I. investments are redefining what's possible across every part of our business.
Spending strains the balance sheet
The earnings beat was overshadowed by the scale of Alphabet's infrastructure outlay. Free cash flow turned negative at minus $5.9 billion for the quarter. Capital expenditure for the full year could reach $190 billion, more than double the $85 billion spent in 2025, and the company said spending would "significantly increase" next year. In June, Alphabet raised about $85 billion through its first share sale in more than two decades, a sharp reversal after years of buybacks.
- Alphabet raises capex guidance to as much as $190 billion for the year
- Alphabet raises about $85 billion in its first share sale in more than two decades
- Q2 earnings release: cloud revenue beats expectations, free cash flow turns negative
AI competition and model delays
While cloud demand validated the spending thesis, Google's own AI product roadmap has hit snags. The launch of its next flagship model, Gemini 3.5 Pro, originally planned for June, was delayed. That has left Google trailing in the AI coding tools market as Anthropic and OpenAI roll out enterprise upgrades and Chinese open-source models gain traction. Last week, stock markets fell after Chinese start-up Moonshot AI released a model nearly as powerful as Anthropic's Claude Fable 5.
Market reaction
Alphabet shares fell more than 1% in extended trading following the release. The stock had risen nearly 11% year-to-date but has dropped about 9% since the end of April, weighed down by the Gemini delays, high-profile executive departures and regulatory pressures.
