Alphabet Raises AI Spending to Over $195 Billion Amid Cloud Surge

Alphabet Inc. reported second-quarter 2026 revenues of $119.8 billion, a 24.2% year-over-year increase that exceeded analyst expectations. This growth was led by the Google Cloud division, which saw revenue surge 82% to $24.8 billion. The segment's operating income more than tripled to $8.8 billion, with margins expanding to approximately 35.6%. Nearly 90% of Fortune 100 companies now use Gemini Enterprise, and the cloud backlog has reached a record $514 billion, indicating that service demand is currently outstripping supply.

To support this expansion, the company raised its 2026 capital expenditure guidance to between $195 billion and $205 billion, primarily for servers, data centers, and networking equipment. This aggressive spending has led to a negative free cash flow of $5.9 billion and a sixfold increase in long-term debt. To mitigate balance sheet leverage, Alphabet executed an $84.75 billion equity raise.

Management expects capital expenditures to grow through 2027. While the company is seeing first-time revenue from custom Tensor Processing Units silicon, it noted that temporary reliance on third-party capacity to meet demand may pressure future profit margins.