Alphabet: Earnings quadruple, but stock falls on higher AI CapEx

Alphabet shares fell 3.9% in pre-market trading after the company raised its 2026 capital expenditure guidance to between $175 billion and $205 billion, despite posting a record quarter in which net profit quadrupled, driven by artificial intelligence.

Alphabet declined 3.9% in pre-market trading today with losses reaching as much as 5% during the opening of the regular session. Investors reacted negatively after the company increased its 2026 capital spending forecast to a range of $175 billion to $205 billion, well above analysts' expectations. Markets interpreted the move as a sign of potential exposure to the so-called AI CapEx trap, triggering one of the stock's weakest trading sessions in recent years.

Before the earnings release, Google shares had gained 11% since the start of the year, supported by investor optimism surrounding the company's AI strategy. The post-earnings sell-off, however, pushed the stock back toward key technical support levels, with some analysts estimating a weekly decline of as much as 9%—its steepest weekly drop in more than two years. Negative sentiment carried into the following session, adding further downward pressure and extending the losses.

From a fundamentals perspective, the second quarter of 2026 marked an exceptional performance for Alphabet. The company reported net income of $112.1 billion, compared with $28.2 billion in the second quarter of 2025, representing a fourfold increase year over year and highlighting the powerful impact of its AI strategy on the group's financial performance. Compared with the first quarter of 2026, profits nearly doubled, suggesting that the company's growth trajectory is structural rather than temporary.

Alphabet also announced an upward revision to its 2026 capital expenditure outlook, forecasting total investments of $175 billion to $205 billion. The increase reflects the company's need to expand its data center infrastructure, develop proprietary AI chips, and strengthen its global network to meet surging demand for cloud computing and artificial intelligence services. The spending plan represents one of the largest technology infrastructure investment programs ever undertaken by a private company.

However, the company now faces the risk of falling into the so-called AI CapEx trap—a situation in which technology companies continue to increase capital spending without generating a proportional increase in AI-related revenues.

Investors are concerned that such an unprecedented level of investment could weigh on profit margins over the medium term, despite the company's outstanding quarterly results. The key question is not Alphabet's current financial strength, but whether management can demonstrate that every dollar invested in AI infrastructure will ultimately generate returns that exceed the company's cost of capital in the years ahead.