Alphabet shares slip as AI capex surge spooks investors
Google Cloud revenue jumps 82%, but heavy capital expenditure plans overshadow strong quarterly results, pushing stock below key moving average.
Alphabet shares declined nearly 5 per cent in premarket trading following the release of its second-quarter earnings report, as investors reacted sharply to the company’s raised full-year capital expenditure guidance. The tech giant increased its forecast for capital spending to $195 billion–$205 billion, up from the previous range of $180 billion–$190 billion, with executives signalling a significant increase is expected for 2027.
The stock closed below its 100-day moving average for the first time since April, raising the possibility of a test of the 200-day moving average around $323. This technical breakdown marks a shift for a company that had been the best-performing stock among the "Magnificent Seven" tech giants leading into the earnings release, driven by optimism regarding its artificial intelligence monetisation efforts.
Despite the market’s negative reaction to the spending plans, Alphabet reported robust financial performance. Google Cloud revenue surged 82 per cent year-on-year to $24.8 billion in the second quarter, while the company’s cloud backlog ballooned to $514 billion, reflecting strong demand for AI infrastructure. Second-quarter capital expenditure came in at $44.9 billion, slightly exceeding Wall Street forecasts of $44.7 billion.
CEO Sundar Pichai highlighted momentum across AI products, including AI-powered Search, YouTube, and the Gemini model, as the company continues to scale its AI ecosystem. The heightened scrutiny on hyperscaler spending plans has placed Alphabet’s aggressive investment strategy under the microscope, with investors weighing the long-term returns against the immediate impact on capital allocation.
Analyst Jeffrey Wlodarczak noted Alphabet's positioning to monetise AI investments through its proprietary TPU/Axion stack and dominant distribution position. In a note, Wlodarczak wrote that Alphabet is the most well-positioned of its peers to capitalise on its massive AI investment across all properties, leveraging major cost advantages and solid AI capabilities to take market share.
