Google Dips After Search Revenues Miss; Capex Guidance Awaited

As we wrote in our GOOGL preview, according to UBS and JPM analysts, the market would be watching two things above all else when Alphabet became the first hyperscaler to report earnings after the close today: capex guidance and monetization language, as “the debate has shifted from “how big is capex” to “who proves monetization and returns.” And yet, in light of the massive expectations for capex growth, the company was facing “downside risk” it it disappointed the buyside bars which were $100BN higher ($350-$375BN) than the median sellside estimate of $250BN. 

So what did GOOGL just report for fiscal second quarter moments ago? Well, Alphabet reported Q2 cloud revenues that surpassed Wall Street’s expectations but slightly missed on sales tied to its search-engine business, threatening to fuel concerns about its heavy spending on artificial intelligence. 

The Google parent also said cloud sales totaled $24.77 billion for the quarter ended June 30, a jump of 82% over the same period last year. That was better than the $22.46 billion that analysts expected, but well short of some buyside whisper bogeys. Sales from search advertising generated $63.27 billion, just below estimates for $63.28 billion. 

Here are the details: 

• Revenue ex-TAC $103.62 billion, +27% y/y, beating estimate $101.07 billion 
• Revenue $119.80 billion, +24% y/y, beating estimate $117.02 billion
  • Google Services revenue $94.54 billion, +15% y/y, beating estimate $94.32 billion
  • Google advertising revenue $81.63 billion, +14% y/y, beating estimate $81.12 billion
  • Google Search & Other Revenue $63.27 billion, +17% y/y, missing estimate $63.28 billion, and in line with the buyside bar of 17% growth. 
  • YouTube ads revenue $11.06 billion, +13% y/y, beating estimate $10.81 billion
  • Google Network Revenue $7.30 billion, -0.7% y/y, beating estimate $7.13 billion
  • Google Subscriptions, Platforms and Devices Revenue $12.91 billion, +15% y/y, missing estimate $13.06 billion
  • Google Cloud revenue $24.77 billion, +82% y/y, beating estimate $22.46 billion
  • Other Bets revenue $382 million, +2.4% y/y, missing estimate $402.2 million
  • Hedging gains $106 million, beating estimate $75.7 million
     
• Total TAC $16.18 billion, +10% y/y, higher than estimate $16.24 billion
• Operating income $40.77 billion, +30% y/y, beating estimate $40.55 billion
  • Google Services operating income $39.54 billion, +20% y/y, missing estimate $40.23 billion
  • Google Cloud operating income $8.81 billion vs. $2.83 billion y/y, beating estimate $6.91 billion
  • Other Bets operating loss $1.80 billion vs. loss $1.25 billion y/y, beating estimate loss $1.72 billion
  • Alphabet-level activities operating loss $5.79 billion vs. loss $3.37 billion y/y, estimate loss $4.81 billion
• Operating margin 34% vs. 32% y/y, estimate 34.7%
• Capital expenditure $44.92 billion vs. $22.45 billion y/y, just a bit higher than the estimate $44.15 billion; the real question is what will the company hint at 2027 capex. 

Here is what the company’s explosively growing capex looks like now:

Some other notable highlights from the report: 

• Number of employees 198,933, +6.3% y/y, estimate 195,527
• Gemini App MAUs 950 million
• Google Cloud backlog $514 billion
• Gain on equity securities of $99.03 billion

Commenting on the quarter, CEO Sundar Pichai said that “our popular AI features are driving Search query growth” although many would counter that GOOGL’s popular AI features were popular 9 months ago and users havelong since moved on to other platforms. He added that “Google Cloud saw a meaningful acceleration in growth as revenues increased 82% to $24.8 billion, led by an increase in Google Cloud Platform (GCP) across enterprise AI Solutions and enterprise AI Infrastructure, as well as core GCP services.”

The company also said that Gemini models now process 22 billion API tokens per minute: “We are seeing strong demand for our security solutions, and our new Gemini 3.5 Flash Cyber delivers highly cost- efficient performance at the frontier.”

Amusingly, the company said that it still hasn’t sold any shares under ATM program, a program which otherwise would be reserved to C-grade meme stonks desperate for liquidity. Come to think of it, if GOOGL plans on unveiling some insane capex number like $400BN or so for 2027, it will absolutely be desperate for liquidity in just a few months. 

Alphabet is the first major US hyperscaler to report earnings this season, offering an early glimpse of what’s to come. The tech sector has committed hundreds of billions of dollars to data centers and other AI offerings, but has yet to show any measurable returns for the trillions it plans on spending on commodities like GPUs and extremely overpriced memory chips. Google is set to spend more than ever on capital expenditures this year to compete in the AI race, and investors have been waiting to see whether that spending is driving new growth or ultimately weighing on profitability. And it appears that investors are starting to get cold feet waiting for the ROI and margin inflection point (which according to Goldman’s agentic propaganda report was supposed to take place this past quarter… it didn’t).