Alphabet Plunges 7% After Earnings as Sky-High AI Capex Spooks Wall Street

Google parent Alphabet (GOOGL) reported Q2 2026 earnings after the bell on July 22. Despite beating on both revenue and profit, the company simultaneously announced it was boosting full-year capex to $195-205 billion — well above the prior $180-190 billion range — with management hinting at further increases next year. The news instantly reignited fears over AI investment returns. After closing down 1.5% on Wednesday (July 22), Alphabet shares fell more than 5% intraday Thursday and extended losses after the close. As of 11:00 PM ET on July 23 (11:00 AM Beijing time on July 24), Alphabet traded at $317.69, down 7.13% (-$24.40) from the prior close of $342.09, with an intraday low of $314.90.^{[New York Post]}

Revenue and Profit Beat, Cloud Shines Brightest

On the financial front, Alphabet delivered a strong Q2. Total revenue grew 24% YoY to $119.8 billion, while net income hit $112.1 billion, a massive jump from $28.1 billion in the same period last year.^[TechCrunch] Google Cloud was the standout growth engine, with revenue surging 82% YoY to $24.8 billion, far exceeding the analyst consensus of $22.5 billion. TechCrunch reported that the growth was “driven primarily by adoption of enterprise AI solutions and enterprise AI infrastructure.”^[TechCrunch]

Google Services (Search, YouTube, etc.) also grew 15% YoY to $94.5 billion. The company disclosed that its AI chatbot Gemini now has 950 million monthly active users, up from 750 million in Q4 2025.^[TechCrunch] This marks Alphabet’s 12th consecutive quarter of double-digit revenue growth.^[TechCrunch]

“This is one of Alphabet’s strongest revenue growth quarters in five years,” Janus Henderson portfolio manager Alison Porter told CNBC. “Alphabet is a very good bellwether for the entire AI wave. We think this performance … is very encouraging for overall AI capex and the returns these platforms are seeing on that spending.”^{[New York Post]}

Capex Hiked, Market Frets Over Return Timeline

Despite the strong results, Alphabet’s aggressive capex stance rattled investors. The company raised its full-year 2026 capex forecast to $195-205 billion from $180-190 billion, and said those numbers could swell further next year.^{[New York Post]} According to CNBC, Bank of America estimates Alphabet’s capex could approach $300 billion next year.^[CNBC]

CEO Sundar Pichai explained on the earnings call that the increase was “primarily due to accelerating delivery of compute capacity to meet growing demand,” stressing the company lacks enough computing power to satisfy the AI demand it sees.^{[New York Post]} Pressed by analysts on when the investments would pay off, Pichai said: “I think our compute capacity investments will start to bear fruit in 2027. We see strong demand indicators, including long-term contracts. If anything, the dynamic is healthier than it was a year ago, and that gives us confidence to make these investments.”^[TechCrunch]

The market wasn’t buying it. “Investors seem to be focused on the sharp rise in capex and the weaker margin outlook,” Quilter Cheviot tech research head Ben Barringer told CNBC. “At the same time, ongoing delays with Gemini 3.5 Pro and a lack of standout product launches raise questions about whether Alphabet’s AI investments have translated into a clear competitive advantage.”^{[New York Post]}

Tesla Crashes Same Day, AI Spending Anxiety Spreads

Alphabet isn’t the only tech giant getting hammered over AI capex. Tesla (TSLA), which reported on the same day, suffered a similar fate. Tesla’s Q2 capex surged 142% YoY to $5.79 billion, and the company expects full-year capex to exceed $25 billion.^{[New York Post]} CEO Elon Musk tried to soothe investors on the call: “This is a huge capex year. I believe everything we’re investing in will generate incredible returns. Really, this could be the best capex returns we’ve ever seen.”^{[New York Post]}

Tesla shares plunged 10% on Thursday, after closing down 1.3% on Wednesday (July 22).^{[New York Post]} Despite missing profit estimates, Tesla reported that core automotive revenue rose 23% YoY to $20.52 billion, the Cybercab has entered production, the Semi truck remains on track for later this year, and the first-generation production line for the Optimus humanoid robot is being installed.^{[Investopedia]}

Notably, just a week earlier, IBM suffered its worst single-day drop since 1968 after admitting to AI strategy “missteps.”^{[New York Post]} CEO Arvind Krishna said the company “did not anticipate the scale of the capex reallocation across the tech industry.”^{[New York Post]} The string of events suggests investor patience with unchecked AI spending is wearing thin — even as companies that underinvest face their own market penalties.

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