Google’s Cloud Boom Helps Justify AI Spending as Pichai Defends Its AI Standing

Alphabet’s latest earnings gave investors two very different things to weigh at once. Google Cloud revenue jumped 82% year-over-year to $24.8 billion in the second quarter, a sharper acceleration than the 63% growth reported the prior quarter.

Reuters reports the results beat Wall Street’s expectation of 64% growth and came alongside a record contract backlog.

But Alphabet also raised its 2026 capital expenditure forecast to as much as $205 billion, and CEO Sundar Pichai spent much of Wednesday’s earnings call defending Google’s AI standing against rivals.

Record Cloud Growth Eases Investor Worries

TechCrunch reports the cloud gains were driven largely by enterprise adoption of Google’s AI solutions and AI infrastructure, with the company’s backlog of contracted-but-unbilled cloud work climbing to $514 billion. 

Alphabet’s overall profit hit $112.1 billion, a sharp jump from the $28.1 billion reported a year earlier, while total revenue grew 24% year-over-year to $119.8 billion and Google Services revenue rose 15% to $94.5 billion. 

Pichai reportedly told analysts the company’s AI investments are redefining what’s possible across every part of its business, describing exciting momentum across the board. 

Adoption of Gemini, Google’s AI chatbot, has also kept climbing, with the app reaching 950 million monthly active users, up from 750 million at the end of last year. 

TechCrunch notes this marked Alphabet’s 12th consecutive quarter of double-digit revenue growth, an unusually long streak even by the company’s own standards.

A Bigger Spending Bill Raises New Questions

Not every number pleased investors. Reuters reports Alphabet raised its 2026 capital expenditure guidance to between $195 billion and $205 billion, about $15 billion above its previous estimate.

Chief Financial Officer Anat Ashkenazi said demand still exceeds the capacity Google has added over the past three years, with the shortage recently forcing Google to limit Gemini AI access.

Shares fell nearly 5% in extended trading following the update, as cited by Yahoo.

Reuters also notes Alphabet posted negative free cash flow for the first time in its history, burning through $5.9 billion during the quarter, while adjusted earnings per share of $2.85 narrowly missed Wall Street’s $2.89 estimate.

Analysts said the higher capex guidance was difficult to justify alongside a negative cash flow quarter, highlighting the tension between Alphabet’s AI spending and near-term profitability.

Pichai Pushes Back on Fears Google Is Falling Behind

The earnings call also gave Pichai a chance to push back against growing concerns about Google’s AI progress. 

Investor worries are intensified after Google delayed Gemini 3.5 Pro, originally expected in June, raising questions about its ability to keep pace with OpenAI, Anthropic, and Chinese rivals. 

Instead, Pichai highlighted Gemini Flash, Google’s faster, lower-cost model already powering cybersecurity, customer service, and enterprise tools, noting Gemini 3.6 Flash, the successor of 3.5 Flash unveiled at I/O 2026, improved by more than 10 points on a coding benchmark. 

Google also launched Gemini 3.5 Flash Lite and the Flash Cyber model this week, while Gemini 3.5 Pro remains in partner testing. 

Pichai added that Gemini 4 is a “very ambitious” project, telling TechCrunch that strong demand and long-term customer deals reinforce confidence in Google’s AI infrastructure investments through 2027.

Source: Google increases capex forecast again after cloud-driven quarterly beat