Alphabet shares fell Wednesday evening after the Google parent reported good, but not great second-quarter results. While artificial intelligence adoption is boosting top-line growth, it’s also driving higher levels of capital spending. And that doesn’t seem to be changing any time soon. Revenue in the second quarter increased 24% year over year to $119.8 billion, well ahead of the $116.9 billion expected, according to LSEG data. Earnings per share came in at $9.11. That’s way above the LSEG-compiled consensus estimate of $2.89. However, the result included a massive ($99 billion) contribution from equity investment gains, driven by its SpaceX and Anthropic stakes. Excluding that gain, Alphabet’s operational earnings appear to be closer to $2.85 per share. That’s why the Street is likely considering this a miss on the bottom line. However, operating income came in better than expected at $40.77 billion, with operating margins expanding 1.6 percentage points from a year ago. Shares of Alphabet are down over 3% in the after-hours session. That continues a downward trend that began in mid-May, after the stock closed at a record high of $402.62 on May 13. It had ascended to those heights after strong first-quarter results in late April offered proof that its AI investments were paying off. But that post-earnings advance in the spring has now evaporated. In the intervening months, the market grew more skeptical of spiraling AI spending from the hyperscalers — and Alphabet’s recent bond and equity offerings contributed to that attitude shift. Plus, a handful of AI researchers leaving for rivals in June and delays to its new flagship model added to the questions surrounding Alphabet entering the second-quarter print. GOOGL YTD mountain Alphabet’s year-to-date stock performance. Bottom line Alphabet delivered a good quarter on the AI demand side of the equation. However, the full report came with enough shortfalls that the stock’s slide in extended trading isn’t surprising. The market isn’t in a forgiving mood. For starters, Alphabet’s underlying operating earnings came up short. Perhaps even more frustrating for investors already concerned about hefty data center spending, the team upped its capital expenditure outlook for the year. It now expects to spend between $195 billion and $205 billion on capex in 2026, up from the $180 billion to $190 billion range offered in April (which itself was an increase from its early February guidance). While this latest increase is to accelerate the delivery of capacity needed to meet demand for the company’s AI offerings, it’s still hard to hear at a time in which quarterly free cash flow has turned negative. Moreover, Alphabet executives reaffirmed that capex would “increase significantly in 2027.” Another smudge on the numbers: Google Search revenue came up short versus expectations. Sure, that still represents robust year-over-year growth of nearly 17%, but a miss is a miss. Now consider that it’s a miss in your most consequential segment, and it’s going to be hard to get Wall Street excited about the results more broadly. This is especially true considering an ongoing debate about what AI infusions into Google Search results mean for the rate of monetization. That won’t be settled by one quarter’s numbers either way. But, on a more positive note, these new AI enhancements are driving an uptick in Google Search usage, according to CEO Sundar Pichai. The two main ones are AI Overviews, which are the generated responses that appear at the top of traditional search results, and AI Mode, a feature that users can toggle via the search bar. “Since expanding AI Mode globally last October, we have surpassed 1 billion monthly active users,” Pichai said. “And just like AI Overviews, AI Mode is driving an incremental increase in search queries overall, and we are now sending billions of clicks to websites every week through AI features in Search.” He added later, “This quarter, we reduced the cost of AI Mode responses to its lowest level since launch, even as we have brought more advanced AI capabilities further.” Lastly, we still have the overhang of the $85 billion fund-raising effort announced in June. As part of that equity raise, Alphabet said it would initiate a $40 billion at-the-market (ATM) offering program in the third quarter, “primarily intended to be used to meet tax obligations associated with employee equity grants.” On Wednesday’s call, CFO Anat Ashkenazi said Alphabet was “not planning to go back to the equity markets,” with the exception of those ATM sales. While that could be received positively, the fact that the ATM is only starting this month means there’s still a good deal of stock supply waiting to hit the market. That puts something of a cap on upside. Despite these imperfections, Alphabet’s second-quarter results point to traction when it comes to the adoption of its AI offerings — and accumulating this evidence over time is what’s needed to justify all the spending. The most direct indicator of this traction is the performance at Google Cloud, which delivered a sizable beat on both revenue and operating income. Other positive signs include strong engagement trends both within the Gemini app and via application programming interface (API) usage on the part of enterprise customers. API tools are how enterprise organizations connect their software stacks to the Gemini model to leverage its capabilities. YouTube advertising was another bright spot, with the platform seeing an uptick in engagement thanks to the World Cup. Why we own it Alphabet has gotten its mojo back since the spring of 2025. It has the respected Gemini family of models and leading custom AI chips, known as tensor processing units (TPUs), to aid its Google Cloud business. Layer in the still-dominate Google Search, YouTube and Waymo, and Alphabet is a worthy tech play in any portfolio. Competitors : Amazon , Microsoft , and Meta Platforms Weight in our portfolio: 3.03% Most recent buy : April 6, 2026 Initiated : Dec. 29, 2025 We also liked what we heard from Pichai on Alphabet’s AI model strategy, coming against the backdrop of its flagship model delays and last week’s emergence of a highly regarded open-weight Chinese model, Kimi K3. Also on Tuesday, Alphabet released a trio of more specialized models , including one targeted for cybersecurity tasks. Pichai affirmed that Alphabet wants to play at every level, with every intention to drive innovation at the frontier level, while also acknowledging the broad-based attraction of “flash” tier models. During his prepared remarks, Pichai said, “We are seeing tons of demand for our workhorse Gemini Flash series because it hits the sweet spot of performance and cost.” Asked about playing in the crowded, lower-cost end of the market, Pichai was quick to note that Alphabet wants to be able to offer the best model at various price points. We think this is the right strategy. Alphabet’s major advantage in AI is its vertically integrated approach, from the model to the silicon with its custom tensor processing units (TPUs). Fellow Club name Broadcom co-designs the TPUs with Alphabet. For that reason, it would be wrong to give up on leading the way in frontier model innovation. At the same time, however, the company’s broad reach and wide array of consumer-oriented offerings means that it has a major opportunity to monetize less-advanced models, where much of the research-and-development spend is likely already accounted for with the development of more advanced frontier models. Putting together both the results and commentary on the call, we are inclined to view the weakness as a long-term buying opportunity and therefore reiterate our 1 rating and $400 price target. However, given the multiple blemishes, including the overhang of Alphabet’s ATM stock sales, we see no reason to rush in Thursday. Instead, we advise waiting for the stock to settle before stepping in. Highlights The Gemini app now has 950 million monthly active users, with daily actives tripling versus the year-ago period. The Gemini model APIs are now processing roughly 22 billion tokens per minute, up from over 16 billion in the prior quarter. A token is the basic unit of data for AI computing. The World Cup was a tailwind for YouTube engagement, with over 1.7 billion unique viewers on the platform to watch World Cup-related content Google Cloud growth accelerated to 82% year over year growth. That is up from the 63% annual growth seen in the first quarter, which itself was an acceleration from 48% growth in the fourth quarter of 2025. Better yet, Google Cloud’s backlog now stands at $514 billion, up from the $460 billion we saw last quarter. Nearly 90% of Fortune 100 companies are now using Gemini Enterprise and 90% are also Google Cloud Security users. (Jim Cramer’s Charitable Trust is long GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Why we’re sticking with Alphabet despite an imperfect quarter and more AI spending