Earnings Beat Expectations and Cloud Business Soars, So Why Is Google Still Falling?
Despite reporting better-than-expected Q2 earnings and explosive growth in its cloud business, Alphabet's stock price fell. Key results included total net revenue of $103.6B, beating estimates, and Google Cloud revenue surging 82% year-over-year to $24.8B. However, the market reacted negatively to a significant increase in the company's 2026 capital expenditure guidance, now projected between $195B and $205B, up approximately $15B. This elevated spending is expected to result in negative free cash flow for 2026 and 2027. Other concerns include the lack of share buybacks in Q2 and a planned $40B at-the-market equity offering, which could dilute shares. While search and YouTube revenues met or slightly exceeded expectations, they showed some moderation compared to prior quarters. Bank of America maintains a "Buy" rating with a $430 price target, arguing that the increased capital investment is directly linked to strong cloud demand, as evidenced by a massive $514B backlog. At current levels, the stock's valuation is seen as attractive relative to its growth prospects.
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