Alphabet raises 2026 capex forecast to $195-205B after Google Cloud revenue surges 82% to $24.8B

By Deborah Mary Sophia and Kenrick Cai Wed, July 22, 2026 at 1:05 PM PDT | 4 min read

July 22 (Reuters) — Alphabet reported its best-ever quarter of growth for its cloud computing division on Wednesday, but faced investor scrutiny after concerns about continued delays to its flagship AI model were compounded by a $15 billion increase in capital spending plans for 2026.

Key Financial Highlights

• Total revenue: $119.8 billion (beat consensus estimate of $116.9 billion)
• Adjusted profit per share: $2.85 (slightly below Wall Street projections of $2.89)
• Google Cloud revenue: $24.8 billion, up 82% year-over-year (analysts expected 64% growth)
• Advertising revenue: $81.6 billion (vs. estimates of $81.1 billion)
• Free cash flow: Negative $5.9 billion — the first negative quarter in Alphabet's history

Capital Expenditure Outlook

Alphabet now expects to spend between $195 billion and $205 billion in capital expenditures for 2026, up from the previous forecast of $180 billion to $190 billion announced last quarter.

Finance Chief Anat Ashkenazi explained the increase, stating: "We have increased our capacity quite significantly over the past three years. The demand still outpaces that investment." She added that faster-than-expected delivery of capacity contributed to the hike.

Ashkenazi also reaffirmed that Alphabet plans another significant increase to capex in 2027.

Market Reaction

Shares fell approximately 3% in extended trading. The stock was initially volatile but mostly flat before declining after Ashkenazi announced the updated capex forecast.

Thomas Monteiro, senior analyst at Investing.com, commented: "After a negative cash flow quarter, the new raise in capex does not sit well for Alphabet. The market's most reliable cash generators are now spending more than they bring in. As long as revenue keeps accelerating, investors will tolerate it. But capital has a real cost again, and the room for error is shrinking every quarter."

Model Uncertainty Tempers Cloud Gains

While Google Cloud has made Alphabet a major beneficiary of the AI boom, the company's own AI efforts have lost momentum this year after delaying the June launch of its next flagship model, Gemini 3.5 Pro.

This 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
• Chinese open-source models have gained strong traction

During the earnings call, multiple analysts pressed CEO Sundar Pichai for clarity on whether Google could keep pace with rivals at the frontier of model development.

Pichai acknowledged: "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."

He noted that while Google continues to test Gemini 3.5 Pro, it has also started training Gemini 4 and is "applying a lot of our compute and effort in that direction" to remain competitive. "We are both very committed and very confident of being at the frontier for the next generation," he added.

TPU Chip Revenue and Competitive Landscape

For the first time in the second quarter, Google began recognizing revenue from direct sales of its TPU chips, which compete with Nvidia's GPUs. However, Ashkenazi noted that the vast majority of revenue from business agreements would come through next year.

As the third-largest cloud services provider behind Amazon Web Services and Microsoft, Google has seen demand surge as companies race to secure cloud capacity for developing, training, and running AI models. This has helped the company land major deals with firms including Anthropic.

Industry Context

Big Tech is expected to spend well over $700 billion this year primarily on AI, while Morgan Stanley has estimated spending could exceed $1 trillion next year.

Alphabet shares have been among the best performers in the "Magnificent 7" group of stocks this year, rising more than 9% through last close. However, concerns over the Gemini delays and rising capital expenditures continue to weigh on investor sentiment.