By Deborah Mary Sophia and Kenrick Cai
July 22 (Reuters) – Alphabet hiked its capital spending guidance for 2026 by $15 billion after reporting the best-ever quarter of growth for its cloud computing division, driven by strong demand from AI-hungry enterprises worldwide.
The search giant now expects to spend between $195 billion and $205 billion in capital expenditures, its finance chief Anat Ashkenazi said on a conference call with analysts. The company said last quarter that it planned to spend between $180 billion and $190 billion this year.
Shares of the company were down more than 3% in extended trading. The stock was initially volatile but mostly flat, but dipped after Ashkenazi announced the capex update.
Revenue at Google Cloud rose 82% to $24.8 billion during the quarter ended June, accelerating from the 63% jump reported in the preceding three months. Analysts on average expected a 64% increase, according to data compiled by LSEG.
“We have increased our capacity quite significantly over the past three years. The demand still outpaces that investment,” Ashkenazi said.
And while Google Cloud has made Alphabet a big beneficiary of the AI boom, the company’s own AI efforts have lost some steam this year after it delayed the June launch of its next flagship model, Gemini 3.5 Pro.
That has left Google trailing in the AI coding tools market and fueled concerns on Wall Street, especially as Anthropic and OpenAI have consistently rolled out enterprise-focused upgrades, and Chinese open-source models have also gained strong traction.
“There are many attributes on which we are still at the frontier. There are areas where we’ve acknowledged we need to improve; coding and agentic coding is an example of that,” CEO Sundar Pichai said on the call.
Adjusted profit per share of $2.85 fell slightly short of Wall Street projections of $2.89. Advertising revenue came in at $81.6 billion compared to estimates of $81.1 billion.
Total revenue for the quarter was $119.8 billion, beating the consensus estimate of $116.9 billion.
CLOUD GAINS
Google began recognizing revenue from direct sales of its TPU chips, which compete with Nvidia’s GPUs, for the first time in the second quarter though the vast majority of revenue from business agreements would come through next year, Ashkenazi said.
The third-largest cloud services provider behind Amazon Web Services and Microsoft, Google has seen demand surge as companies race to secure the cloud capacity needed to develop, train and run AI models, helping it land major deals with firms, including Anthropic.
The robust cloud growth may ease some concerns over the company’s hefty AI spending. Google has rapidly scaled up investments in data centers and advanced chips to build out its AI infrastructure, but investors have been worried whether the outlay would translate into sustainable revenue growth.
Big Tech is expected to spend well over $700 billion this year primarily on AI, while Morgan Stanley has pegged the estimated spend at more than $1 trillion for the next year.
Google’s Search business has emerged as a bright spot, with the company’s AI initiatives drawing more advertising dollars.
Features such as AI Overviews and AI Mode have helped boost overall search queries and drive deeper engagement by allowing users to execute longer, conversational searches. Google has capitalized on the strong usage by expanding ads within those AI features.
Alphabet shares have been among the best performers in the “Magnificent 7” group of stocks this year so far, rising nearly 11%. But concerns over the Gemini delays, some high-profile executive departures and regulatory pressures have dragged the stock about 9% lower since the end of April.
Rivals Microsoft and Amazon are set to report their quarterly earnings next week.
(Reporting by Deborah Sophia in Bengaluru; Editing by Shilpi Majumdar and Aurora Ellis)
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