The cocaine nose jobs of Wall Street’s tolerance for artificial intelligence investment might look limitless, but Alphabet found that the limit was $200 billion.
According to the Wall Street Journal the $4 trillion outfit raised its estimated capital expenditure to a new range stretching past that figure while reporting second-quarter earnings. Investors gave the stock a good kicking, sending it down more than four per cent in after-hours trading before it clawed back slightly.
The selloff came despite otherwise beefy numbers. Revenue rose 24 per cent year on year to $119.8 billion for the quarter, while its cloud division grew 82 per cent and booked $24.8 billion.
Both figures beat analysts’ estimates. Alphabet posted $98 billion in other income, mostly from gains in stock it owns in other companies.
None of that mattered much once investors spotted Alphabet’s swelling AI infrastructure bill and its drop into negative free cash flow. Google’s finance chief said that trend would continue as the company dug deeper into AI.
Zacks Investment Management portfolio manager Brian Mulberry said: “The 200 was the do-not-cross line,” referring to Google’s revised capex estimates.
Mulberry was miffed by what he saw as Google’s failure to explain how its AI spending would turn into more revenue.
“You can’t be offloading this much cash and not talk about it,” he said.
Google has spent recent months trying to catch up in the AI race. It released Gemini 3 in November, a model competitive with top offerings from OpenAI and Anthropic, but has since slipped behind them.
Alphabet chief executive Sundar Pichai said: “There are many areas where we are still at the frontier. There are areas where we need to improve.”
Meanwhile, Google’s cloud business has been keeping the share price from looking too sickly. Its second-quarter cloud backlog grew to $514 billion, up from $460 billion in the previous quarter.
To help fund its data centre buildout, Google last month announced an $85 billion equity raise. It reported $44.9 billion in capital expenditure for the second quarter.
Google’s stock fell two per cent on Friday after Bloomberg reported that the company delayed Gemini 3.5 Pro because it struggled to hit internal goals.
Tech stocks dipped that day, partly because Chinese outfit Moonshot AI released a breakthrough open-source model. In June, Google stock took a knock after two key researchers left for Anthropic.
On the earnings call, Pichai said Gemini 3.5 Pro is in testing and that Google has begun pretraining its next-generation models, Gemini 4. He said nearly 90 per cent of the Fortune 100 use Gemini’s business offering and the company’s cloud security infrastructure.
On Tuesday, Google announced three cheaper Gemini versions, 3.6 Flash, 3.5 Flash-Lite and 3.5 Flash Cyber, which is aimed at cybersecurity. The announcement did not include a new Pro model, which has not been updated since February.
Since then, rivals have hogged the model development spotlight with Anthropic’s June release of Mythos 5 and Fable 5, and OpenAI’s July announcement of GPT-5.6.
Before Wednesday’s earnings, analysts wanted signs of how consumer AI adoption was affecting web search, the central pillar of Google’s advertising business.
Search revenue grew 17 per cent year on year, in line with analyst expectations. Google said growth was fuelled by AI features including the Gemini app, which now has 950 million monthly active users.
Google last year launched AI Mode, which searches and responds to users like a chatbot and shows fewer links. In 2024, it rolled out AI Overviews, which provides a custom summary of search results.
Google said in May that AI Overviews had more than 2.5 billion monthly users.
