Alphabet (GOOGL) reported Q2 2026 earnings after the bell on Wednesday, and on paper it looked like a blowout. Revenue came in at $119.80 billion, beating analyst estimates of $116.53 billion. EPS hit $9.11, miles ahead of the $2.87 consensus.
But the market wasn’t cheering. GOOGL stock dropped around 7% after the report, and it now sits roughly 20% below its recent all-time high.
The selloff came down to one thing: spending. Alphabet raised its 2026 CapEx forecast to between $195 billion and $205 billion, up from the prior guidance of $180 billion to $190 billion. That follows $91 billion in spending last year.
Google Search had its best quarter on record, pulling in $63.3 billion in revenue, up 17% year over year. AI features including AI Overviews and AI Mode are driving more search activity. AI Mode already has 1 billion monthly active users globally.
Google Cloud was the standout, growing 82% to $24.8 billion in revenue. The platform’s order backlog stood at $514 billion as of June 30, a $50 billion jump from Q1 alone.
The problem investors have is that data centers and chips get depreciated over time, not expensed immediately. That means today’s massive spending will eat into profits for years.
On top of that, Alphabet actually posted negative free cash flow of $5.8 billion in Q2, once you strip out a $98 billion increase in the value of its investment holdings in companies like Anthropic and SpaceX.
That investment gain is what inflated the headline EPS figure. Without it, the underlying cash picture looks far less impressive.
Despite the drop, Wall Street hasn’t turned its back on the stock. Royal Bank of Canada kept its buy rating with a $475 price target. Cantor Fitzgerald reiterated overweight but trimmed its target from $435 to $420. Freedom Capital upgraded to strong buy.
The average analyst price target sits at $410.09, with 30 buys, 6 strong buys, and just 3 holds.
Alphabet also announced a quarterly dividend of $0.22 per share, payable September 14 to shareholders of record on September 7.
On the regulatory side, Alphabet was handed an EU antitrust fine of approximately $1 billion, adding another headwind to an already complicated week.
Insiders have sold $7.67 million worth of stock over the past 90 days, including a sale by CAO Marsida Saraci and Director John L. Hennessy.
GOOGL opened at $319.09 on Friday, below both its 50-day moving average of $360.63 and its 200-day moving average of $337.38.
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