Alphabet has reported its strongest quarterly growth ever for its cloud computing business, but investors responded cautiously after the company raised its capital spending forecast and faced renewed questions over delays to its next flagship artificial intelligence model.
The Google parent now expects capital expenditure of between $195 billion and $205 billion in 2026, up from its previous forecast of $180 billion to $190 billion. Chief financial officer Anat Ashkenazi said the increase reflected stronger demand for computing capacity and faster delivery of infrastructure.
“We have increased our capacity quite significantly over the past three years. The demand still outpaces that investment,” Ashkenazi told analysts.
Alphabet shares fell about 3 per cent in extended trading after the announcement.
Google Cloud revenue rose 82 per cent to $24.8 billion in the quarter ended in June, well ahead of analysts’ expectations for 64 per cent growth, according to LSEG data. Demand from companies seeking computing power for artificial intelligence development helped drive the performance.
Advertising revenue reached $81.6 billion, slightly above forecasts of $81.1 billion. Total quarterly revenue came in at $119.8 billion, beating the $116.9 billion consensus estimate.
Adjusted earnings per share, however, stood at $2.85, narrowly missing expectations of $2.89. Alphabet also reported negative free cash flow of $5.9 billion, the first such result in the company’s history.
While Google Cloud has benefited strongly from the AI boom, Alphabet’s own model development has faced growing scrutiny. The company delayed the expected June launch of Gemini 3.5 Pro, raising concerns that it may be losing ground to rivals such as OpenAI and Anthropic in enterprise AI and coding tools.
CEO Sundar Pichai acknowledged that Google needed to improve in some areas, particularly coding and agentic coding.
He said the company continued to test Gemini 3.5 Pro while also training Gemini 4, adding that Alphabet was directing significant computing resources towards its next generation of models.
“We are both very committed and very confident of being at the frontier for the next generation,” Pichai said.
Alphabet also began recognising revenue from direct sales of its TPU artificial intelligence chips, which compete with Nvidia’s processors. Ashkenazi said most revenue from major business agreements would arrive next year.
Google remains the third-largest cloud services provider behind Amazon Web Services and Microsoft. Demand for cloud infrastructure has surged as companies race to build and operate AI systems.
Ashkenazi also confirmed that Alphabet expects another significant increase in capital spending in 2027, adding to investor concerns about the cost of the AI race.
Alphabet shares had gained more than 9 per cent this year through the previous close, but concerns over AI delays, executive departures and regulatory pressure have weighed on the stock since April.
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