Alphabet (NASDAQ:GOOG) shares moved lower in pre-market trading on Thursday after investors focused on the company’s sharply higher artificial intelligence spending, despite another quarter of strong revenue growth and earnings that comfortably exceeded expectations.
The stock fell around 3.5% before the opening bell as concerns over accelerating capital expenditure outweighed the company’s solid financial performance.
AI investment drives record capital expenditure
Alphabet reported second-quarter capital expenditure of $44.9 billion, roughly double the level recorded a year earlier.
Management also increased its full-year 2026 capital expenditure guidance to between $195 billion and $205 billion, up from its previous forecast of $180 billion to $190 billion.
The heavier investment programme pushed free cash flow into negative territory at -$5.9 billion, highlighting the financial impact of the company’s aggressive expansion of AI infrastructure.
Cloud growth powers another strong quarter
Despite investor concerns over spending, Alphabet delivered another set of strong financial results.
Second-quarter revenue reached approximately $119.8 billion, representing year-over-year growth of 24%, while diluted earnings per share climbed to $9.11, comfortably ahead of analysts’ expectations.
Google Cloud remained one of the company’s strongest growth engines, with revenue rising approximately 82% from a year earlier to $24.8 billion. Demand for AI infrastructure and Gemini services continued to support expansion, while the division’s operating margin improved to more than 35%.
Investors question pace of AI spending
Chief Financial Officer Anat Ashkenazi acknowledged ongoing infrastructure constraints, saying, “We’re still in a supply-constrained environment” with “very strong demand both from external cloud customers as well as across the business.”
However, those comments did little to ease investor concerns, particularly after management indicated that capital expenditure is expected to increase again in 2027.
Growing scrutiny over AI investment has become a broader theme across the technology sector, as investors weigh whether future revenue growth will justify rapidly rising infrastructure costs.
Market sentiment adds to pressure
Alphabet’s decline also came as broader equity markets traded cautiously, with the S&P 500, Dow Jones Industrial Average and Nasdaq all moving modestly lower ahead of the opening bell.
The combination of record AI investment, negative free cash flow and expectations for even higher spending next year overshadowed the company’s earnings beat, leaving investors questioning whether returns on AI infrastructure investment will keep pace with mounting expenditure.
Alphabet stock price
