Image Source: Alphabet
By Brian Nelson, CFA
On July 22, Alphabet (GOOG) (GOOGL) reported mixed second quarter results, but the strong performance was overshadowed by concerns over the return on the level of spending on artificial intelligence. Consolidated Alphabet revenues increased 24%, or 23% in constant currency, marking the 12th consecutive quarter of double-digit revenue growth. Google Services revenue increased 15% thanks in part to 17% growth in Google Search & other, while Google Cloud revenues increased a whopping 82%. Consolidated Alphabet operating income increased 30%, as its operating margin expanded 2 percentage points, to 34%.
Management had the following to say about the results:
Our AI investments are redefining what’s possible across every part of our business.
Q2 was an amazing quarter, with Alphabet revenues growing 24% year-over-year and Google Cloud revenues accelerating to 82% growth, driven by demand for AI infrastructure and AI solutions. It’s great to see wide adoption of Gemini Enterprise, with nearly 90% of the Fortune 100 using it.
We have exciting momentum across the board. Our popular AI features are driving Search query growth. Gemini models now process 22 billion API tokens per minute and the Gemini App has 950 million monthly active users. We are seeing strong demand for our security solutions, and our new Gemini 3.5 Flash Cyber delivers highly cost-efficient performance at the frontier. And month over month, people turn to YouTube for major world events, with over 1.7 billion unique viewers watching World Cup-related videos during the FIFA World Cup 2026.
These outstanding results show that our differentiated, full stack approach to AI is delivering real, measurable value for consumers, customers, and our partners globally.
Alphabet ended the quarter with $242.5 billion in total cash, cash equivalents, and marketable securities against long-term debt of $98.2 billion. In June, Alphabet issued a combination of Class A and Class C stock and mandatory convertible preferred stock for aggregate net proceeds of $49.6 billion, in part to be used in capital expenditures to scale AI infrastructure and global compute. In the second quarter, the company also issued senior unsecured notes for net proceeds of $20.3 billion.
During the second quarter, Alphabet generated $39.1 billion in net cash provided by operating activities, while it spent $44.9 billion in purchases of property and equipment, resulting in a free cash flow burn of $5.86 billion. Management also raised its 2026 capital expenditure guidance to $195-$205 billion, up from a prior forecast of $180-$190 billion, which sent the stock tumbling. Capital spending is expected to increase significantly in 2027 as well, and the market remains concerned that Alphabet may be spending too much on AI. Looking past 2027, however, we see a substantial improvement in free cash flow, and Alphabet remains a top holding in the Best Ideas Newsletter portfolio at this time.
—–
Brian Nelson owns shares in SPY, SCHG, QQQ, QQQM, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, QQQM, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.