Alphabet reported its best-ever quarter of growth for its cloud computing division, but faced investor scrutiny after concerns about continued delays to its flagship AI model were aggravated by a $15bn increase in capital spending plans for 2026.
The search company now expects to spend between $195bn and $205bn in capital expenditures, its finance chief Anat Ashkenazi said on a conference call with analysts.
The company said last quarter that it planned to spend between $180bn and $190bn this year.
Shares of the company were down about 3% in extended trading. The stock was initially volatile but mostly flat, but dipped after Ashkenazi announced the capital expenditure update.
Strong demand from AI-hungry enterprises worldwide
Revenue at Google Cloud rose 82% to $24.8bn during the quarter ended June, driven by strong demand from AI-hungry enterprises worldwide. Analysts on average expected a 64% increase, according to data compiled by LSEG.
Advertising revenue came in at $81.6bn compared to estimates of $81.1bn. Total revenue for the quarter was $119.8bn, beating the consensus estimate of $116.9bn.
While Google Cloud has made Alphabet a big beneficiary of the AI boom, the company's own AI efforts have lost some steam this year after it delayed the June launch of its next flagship model, Gemini 3.5 Pro.
That has left Google trailing in the AI coding tools market and fuelled concerns on Wall Street, especially as Anthropic and OpenAI have consistently rolled out enterprise-focused upgrades, and Chinese open-source models have also gained strong traction.
During the question-and-answer portion of the earnings call, multiple analysts pressed CEO Sundar Pichai for clarity around whether Google could keep with its rivals at the frontier of model development.
"There are many attributes on which we are still at the frontier. There are areas where we've acknowledged we need to improve; coding and agentic coding is an example of that," Pichai said on the call.
Pichai said that while Google continued to test Gemini 3.5 Pro, it had also started training Gemini 4 and was "applying a lot of our compute and effort in that direction" in order to remain competitive.
'Very confident of being at the frontier for the next generation'
"We are both very committed and very confident of being at the frontier for the next generation," he said.
Meanwhile, Google began recognising revenue from direct sales of its TPU chips, which compete with Nvidia's GPUs, for the first time in the second quarter though the vast majority of revenue from business agreements would come through next year, said Ashkenazi.
The third-largest cloud services provider behind Amazon Web Services and Microsoft, Google has seen demand surge as companies race to secure the cloud capacity needed to develop, train and run AI models, helping it land major deals with firms, including Anthropic.
Big Tech is expected to spend a lot more than $700bn this year primarily on AI, while Morgan Stanley has pegged the estimated spend at more than $1tn for the next year.