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Tuesday, 28 July 2026

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Alphabet Is Getting ‘Ambitious’ With AI. Don’t Get Ambitious With GOOGL Stock.

By Yahoo Finance

Alphabet Is Getting ‘Ambitious’ With AI. Don’t Get Ambitious With GOOGL Stock.

Alphabet (GOOG) (GOOGL) released its Q2 2026 earnings yesterday, July 22, after the close of markets. The earnings were a mixed bag, with the company beating on the top line and missing on the bottom line. The stock is, however, down today as investors fret over the ever-growing capex to build artificial intelligence (AI) infrastructure. In my previous article, I noted that while GOOGL slipped below Berkshire Hathaway's (BRK.A) (BRK.B) buying price in the June private placement, the stock wasn't a screaming buy. I'll look into Alphabet's outlook and examine whether GOOGL stock is a compelling buy now.

Alphabet Q2 Earnings Snapshot

Let's begin by looking at the headline numbers from Alphabet's Q2 report. Revenues increased 24% year-over-year (YoY) to $119.8 billion, with the number coming in ahead of the $116.9 billion that analysts were expecting. Google Search revenues rose 17% YoY, which was slightly below estimates, while YouTube ad revenues rose 13%, beating estimates. What stole the show, however, was the 82% growth in cloud revenues. For context, consensus estimates called for a 63% growth, which was similar to what the company posted in the previous quarter.

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Alphabet's cloud revenues have been growing much faster than those of Amazon (AMZN) and Microsoft (MSFT), two of its bigger rivals. The company's cloud order backlog, which also includes chips, rose by over $50 billion as compared to Q1 and surpassed $500 billion.

The stellar growth in cloud revenues was, however, dampened by two factors. First, the company said that it expects margin pressure in the near term as it is using third-party compute capacity to make up for the demand-supply mismatch. Second, it raised its 2026 capex budget to between $195 billion and $205 billion, which is $15 billion higher than the previous guidance.

Meanwhile, while investors were willing to overlook the capex hike announced during the Q1 earnings call and sent the stock soaring nearly 10%, this time around they are not as forgiving, and the stock is trading by almost the same amount in the opposite direction despite the mammoth growth in cloud revenues.