--- title: "Google kicks off AI earnings season with the most expensive report card ever, at $205 billion." type: "News" locale: "en" url: "https://longbridge.com/en/news/293566607.md" description: "Alphabet reported Q2 revenue of $119.8 billion and net profit surged 298% to $112.1 billion, driven by a $99 billion unrealized gain from Anthropic and SpaceX holdings. Google Cloud revenue jumped 82%, but shares fell nearly 5% after-hours. Investors reacted negatively to CFO warnings regarding short-term margin pressure due to third-party cloud reliance and a significant hike in full-year capital expenditure guidance to $195-205 billion for AI infrastructure." datetime: "2026-07-23T06:06:12.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/293566607.md) - [en](https://longbridge.com/en/news/293566607.md) - [zh-HK](https://longbridge.com/zh-HK/news/293566607.md) --- # Google kicks off AI earnings season with the most expensive report card ever, at $205 billion. Author: bootly, BitpushNews Alphabet, Google's parent company, delivered a stellar quarterly report, with its cloud business surging 82%, net profit soaring nearly 300%, and search traffic hitting a record high. However, this did not prevent its stock price from falling nearly 5% in after-hours trading. Author: bootly, BitpushNews As the first tech giant to appear in this round of US stock market tech earnings season, Google set a subtle tone for Microsoft, Amazon, and Meta in the coming weeks: exceeding revenue expectations is no longer enough; Wall Street now only cares about one thing—how much more money you're burning through, and when you'll recoup your losses. The financial figures are almost impeccable. Looking at the numbers alone, this earnings report is almost flawless. Second-quarter revenue was $119.8 billion, a 24% year-over-year increase, exceeding market expectations. Adjusted earnings per share were $2.85, slightly below the expected $2.89, but on a GAAP basis, earnings per share reached a high of $9.11—thanks to a $99 billion windfall: nearly $100 billion in unrealized gains from the revaluation of Google's Anthropic and SpaceX holdings this quarter. This money directly boosted net profit from $28.2 billion in the same period last year to $112.1 billion, an increase of 298%. Excluding this factor, operating profit was $40.8 billion, a year-on-year increase of 30%. Cloud business is the absolute protagonist. Google Cloud's quarterly revenue was $24.8 billion, a year-on-year surge of 82%, far exceeding market expectations of $22.4 billion, and also a step up from the 63% growth rate of the previous quarter. Cloud business operating profit reached $8.8 billion, with a profit margin hitting a record high of 35.6%. The backlog of orders reached $514 billion, an increase of $50 billion quarter-over-quarter—enterprise customers are signing long-term AI cloud contracts at an unprecedented pace. YouTube advertising revenue reached $11.06 billion, a 13% increase, exceeding expectations. Search revenue reached $63.3 billion, a 17% increase, slightly below the expected $63.4 billion, but search traffic driven by the World Cup hit a record high—Pichai himself said, "As a football fan, seeing this data is particularly exciting." Everything is great. Except for one number. A single sentence from the CFO caused the stock price to drop. During the after-hours conference call, Chief Financial Officer Anat Ashkenazi mentioned that the company plans to expand its use of third-party cloud service providers' computing power in the third quarter to compensate for insufficient internal supply. "This will put short-term pressure on profit margins." Upon hearing this, the stock price immediately fell. Deepwater Asset Management analyst Gene Munster wrote on X: "Google fell 4% because the CFO said cloud profit margins would decline in the second half of the year—they need to find third parties to help, like SpaceX." Google had already signed a $920 million monthly GPU lease with SpaceX, while Microsoft has spent even more and gone further with "new cloud" vendors like CoreWeave and Nebius. After the CFO's speech, CoreWeave and Nebius rose 4% and 5% respectively in after-hours trading—a negative for Google, but a real order signal for them. The profit margin warning was just the trigger; what really worried investors was capital expenditure. This quarter, Google spent $44.9 billion on servers and data centers, doubling year-over-year. Even more alarming is the full-year guidance: capital expenditure for 2026 has been revised upwards from $180-190 billion to $195-205 billion. This means Google will be investing $200 billion in AI infrastructure this year. Ashkenazi stated, "We are still constrained by supply." The implication is—if we weren't unable to buy more equipment, we would be spending even more. And what about 2027? She had already predicted in April that next year's capital expenditure would "significantly increase" compared to this year. Evercore analysts estimated a figure of $262 billion. Investors' anxiety is understandable: investment in AI infrastructure is growing exponentially, but revenue growth is linear. Google's free cash flow turned negative this quarter at -$5.9 billion. Revenue is rising, but spending is happening even faster. TPU Profit Margin Unknown? Another detail from the conference call that drove analysts crazy was the company's refusal to answer when asked about the difference in profit margins between its self-developed TPU chips and external cloud services. Munster commented, "TPUs are likely diluting profit margins, but it's still small at the moment." The problem is, nobody knows exactly how small. CFA and VanEck analyst Matthew Sigel attempted to break down Google's token revenue: processing 22 billion tokens per minute, with an annualized processing volume of approximately 11.6 quadrillion tokens. Based on market prices, this translates to annualized revenue between $1.2 billion and $23 billion. However, he emphasized that this figure is low because the token statistics include a large number of free users and Google's own internal consumption—these do not contribute to cloud revenue. "AI token sales may only account for 5% to 15% of Cloud's annualized revenue," Sigel said. He also pointed out that this figure is growing at a rate of nearly 40% per year, and pricing power is shifting towards Google. The problem is that this 5%-15% revenue contribution is insufficient to support $200 billion in annual capital expenditures; the calculations leave investors uncertain. In general, market concerns focus on three levels: First, runaway capital expenditures. If this further increases to over $260 billion by 2027, depreciation, equipment, energy, and data center costs will continue to impact profits and cash flow. Google must prove that these investments will deliver sufficiently high revenue growth and ROI. Second, intensified AI competition. Google has just delayed the release of Gemini 3.5 Pro, while Anthropic and OpenAI are rapidly iterating, and the rise of Chinese open-source models is also depressing token prices. Third, concerns about core business. While search revenue grew 17% this quarter, the result was largely in line with market expectations and did not bring any significant surprises. The third quarter will begin to face a higher year-on-year base, and the growth rate of the search business may face some pressure. Currently, AI search has not significantly disrupted Google's advertising model, but investors are still observing whether traditional search clicks and ad impressions will be affected as users increasingly obtain answers directly from AI summaries. Google Cloud can become a new growth engine, but search advertising remains Alphabet's most important source of profit. Google must both advance in AI and safeguard its core search business. However, Wall Street remains generally optimistic. The analyst consensus rating is "Strong Buy," with an average target price of approximately $438, implying an upside of about 27%. In conclusion, Alphabet's earnings report tells a contradictory story about the "present versus the future." Current performance is impeccable, but the market is pricing in the future—when will sustainable returns actually materialize? Pichai stated that the company will continue to invest as long as it sees attractive returns. For investors, the real question is: when will this return arrive? And how much more money will need to be burned before it does? Google's stock price decline doesn't mean the market doesn't believe in AI. The real question the market is asking is: Who can not only spend the most money in the AI ​​era, but also be the first to turn those investments into sustainable profits and free cash flow? 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