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Alphabet says AI demand exceeds supply, lifting 2026 CapEx guidance to $195B-$205B.
Cloud revenues surged 82% to $24.8B, as backlog hit $514B, and margin reached 35.6%.
AI features boosted Search usage, while Gemini expanded monetization across ads and advertiser tools.
Alphabet Inc. (GOOGL - Free Report) used its second-quarter call to make one point clear: demand is not the problem. Capacity is. Management framed the quarter as proof that its full-stack AI strategy is driving growth across Search, Cloud and YouTube.
The bigger investor question was how far Alphabet will lean into that opportunity. Executives answered with a higher capital spending outlook and a firmer defense of Gemini and TPUs.
GOOGL Search Keeps AI at the Center
CEO Sundar Pichai said Alphabet’s momentum still starts with Search. He said AI Overviews and AI Mode are being combined into one experience.
Pichai added that AI Mode has topped 1 billion monthly active users and is driving incremental query growth. He also said Google is now sending billions of clicks to websites each week through AI features in Search.
That backdrop helped Google Search and other revenues rise 17% year over year to $63.3 billion. Philipp Schindler, senior vice president and chief business officer, said retail and finance led the gains.
Alphabet Cloud Shows the Biggest Shift
Cloud remained the clearest expression of Alphabet’s AI demand story. Revenues rose 82% to $24.8 billion, while operating income jumped to $8.8 billion, and margin reached 35.6%.
Pichai pointed to uptake across chips, models, data, security and agent platforms. He said nearly 90% of Fortune 100 companies now use Gemini Enterprise.
Chief financial officer Anat Ashkenazi said Cloud backlog climbed to $514 billion, up by more than $50 billion sequentially. She said just more than 50% should convert to revenues over the next 24 months.
GOOGL Raises the AI Spending Bar
Ashkenazi raised full-year 2026 capital spending guidance to $195-$205 billion from $180-$190 billion. She tied the increase to faster capacity delivery as AI demand continues to outpace supply.
That spending is already showing up in the numbers. Second-quarter CapEx was $44.9 billion, free cash flow was negative $5.9 billion, and management said higher depreciation and data center operating costs will keep pressuring results.
Alphabet still reported revenues of $103.62 billion and adjusted EPS of $9.11 for the second quarter of 2026. EPS beat the Zacks Consensus Estimate of $2.88, while revenues topped the consensus mark of $101.28 billion.
The analyst Q&A focused on whether Alphabet can stay at the model frontier while scaling fast enough to meet demand. Pichai said the company wants strong models across the full price-performance curve, from Flash-Lite to larger frontier systems.
He was also more explicit on execution. Pichai said coding remains an area that needs improvement, but added that Gemini 3.6 Flash improved by more than 10 points on DeepSWE versus 3.5 Flash.
On infrastructure, Pichai said TPUs are first allocated to frontier model development, then to core products such as Search, YouTube and Cloud. Ashkenazi said TPU system sales are now part of Cloud revenues and should ramp up further into 2027.
GOOGL Sees More Ways to Monetize AI
Schindler argued that Gemini is strengthening monetization rather than diluting it. He said Google is using the models across ad quality, advertiser tools and new AI experiences.
That mattered because Search and YouTube still fund the company’s AI buildout. YouTube ads rose 13% to $11.1 billion, and Google Services revenues increased 15% to $94.5 billion.
Asked about the next leg of YouTube growth, Schindler pointed to connected TV, Demand Gen, Shorts and more shoppable formats. He also highlighted Buy with Google Pay on TVs and affiliate tools as new commerce levers.
Alphabet’s Tone Turns More Assertive
What stood out on the call was not caution about demand, but confidence in return profiles. Pichai repeatedly described AI adoption as still early across consumer and enterprise markets.
Ashkenazi said Alphabet will keep investing as long as returns remain attractive. She also said third-party capacity can bridge near-term shortages, even if it creates modest margin pressure.
Together, those comments left a clear message. Alphabet is willing to accept near-term cost pressure to secure multiyear AI and Cloud opportunities.
GOOGL Zacks Rank and Style Score View
GOOGL sports a Zacks Rank #1 (Strong Buy). Under the Zacks framework, that points to favorable earnings estimate revision trends and remains the first signal investors are meant to evaluate. You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock’s Style Scores are mixed, with a Momentum Score of A, Growth Score of B, Value Score of D and VGM Score of C. Zacks says the strongest setups usually pair a Rank #1 or #2 (Buy) with A or B Style Scores, while the rank itself can change as estimate revisions adjust after results.
View the Zacks #1 Rank List
Image: Bigstock
GOOGL Q2 Earnings Call Centers on AI Capacity
Key Takeaways
Alphabet Inc. (GOOGL - Free Report) used its second-quarter call to make one point clear: demand is not the problem. Capacity is. Management framed the quarter as proof that its full-stack AI strategy is driving growth across Search, Cloud and YouTube.
The bigger investor question was how far Alphabet will lean into that opportunity. Executives answered with a higher capital spending outlook and a firmer defense of Gemini and TPUs.
GOOGL Search Keeps AI at the Center
CEO Sundar Pichai said Alphabet’s momentum still starts with Search. He said AI Overviews and AI Mode are being combined into one experience.
Pichai added that AI Mode has topped 1 billion monthly active users and is driving incremental query growth. He also said Google is now sending billions of clicks to websites each week through AI features in Search.
That backdrop helped Google Search and other revenues rise 17% year over year to $63.3 billion. Philipp Schindler, senior vice president and chief business officer, said retail and finance led the gains.
Alphabet Cloud Shows the Biggest Shift
Cloud remained the clearest expression of Alphabet’s AI demand story. Revenues rose 82% to $24.8 billion, while operating income jumped to $8.8 billion, and margin reached 35.6%.
Pichai pointed to uptake across chips, models, data, security and agent platforms. He said nearly 90% of Fortune 100 companies now use Gemini Enterprise.
Chief financial officer Anat Ashkenazi said Cloud backlog climbed to $514 billion, up by more than $50 billion sequentially. She said just more than 50% should convert to revenues over the next 24 months.
GOOGL Raises the AI Spending Bar
Ashkenazi raised full-year 2026 capital spending guidance to $195-$205 billion from $180-$190 billion. She tied the increase to faster capacity delivery as AI demand continues to outpace supply.
That spending is already showing up in the numbers. Second-quarter CapEx was $44.9 billion, free cash flow was negative $5.9 billion, and management said higher depreciation and data center operating costs will keep pressuring results.
Alphabet still reported revenues of $103.62 billion and adjusted EPS of $9.11 for the second quarter of 2026. EPS beat the Zacks Consensus Estimate of $2.88, while revenues topped the consensus mark of $101.28 billion.
Alphabet Inc. Price, Consensus and EPS Surprise
Alphabet Inc. price-consensus-eps-surprise-chart | Alphabet Inc. Quote
Alphabet Defends Gemini and TPUs
The analyst Q&A focused on whether Alphabet can stay at the model frontier while scaling fast enough to meet demand. Pichai said the company wants strong models across the full price-performance curve, from Flash-Lite to larger frontier systems.
He was also more explicit on execution. Pichai said coding remains an area that needs improvement, but added that Gemini 3.6 Flash improved by more than 10 points on DeepSWE versus 3.5 Flash.
On infrastructure, Pichai said TPUs are first allocated to frontier model development, then to core products such as Search, YouTube and Cloud. Ashkenazi said TPU system sales are now part of Cloud revenues and should ramp up further into 2027.
GOOGL Sees More Ways to Monetize AI
Schindler argued that Gemini is strengthening monetization rather than diluting it. He said Google is using the models across ad quality, advertiser tools and new AI experiences.
That mattered because Search and YouTube still fund the company’s AI buildout. YouTube ads rose 13% to $11.1 billion, and Google Services revenues increased 15% to $94.5 billion.
Asked about the next leg of YouTube growth, Schindler pointed to connected TV, Demand Gen, Shorts and more shoppable formats. He also highlighted Buy with Google Pay on TVs and affiliate tools as new commerce levers.
Alphabet’s Tone Turns More Assertive
What stood out on the call was not caution about demand, but confidence in return profiles. Pichai repeatedly described AI adoption as still early across consumer and enterprise markets.
Ashkenazi said Alphabet will keep investing as long as returns remain attractive. She also said third-party capacity can bridge near-term shortages, even if it creates modest margin pressure.
Together, those comments left a clear message. Alphabet is willing to accept near-term cost pressure to secure multiyear AI and Cloud opportunities.
GOOGL Zacks Rank and Style Score View
GOOGL sports a Zacks Rank #1 (Strong Buy). Under the Zacks framework, that points to favorable earnings estimate revision trends and remains the first signal investors are meant to evaluate. You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock’s Style Scores are mixed, with a Momentum Score of A, Growth Score of B, Value Score of D and VGM Score of C. Zacks says the strongest setups usually pair a Rank #1 or #2 (Buy) with A or B Style Scores, while the rank itself can change as estimate revisions adjust after results.