TLDR
- Alphabet stock fell 7% on Thursday after reporting its first-ever negative free cash flow of -$5.9 billion in Q2.
- The company raised its 2026 AI capital spending forecast by $15 billion to between $195 billion and $205 billion.
- Q2 revenue grew 24% to $119.8 billion, with Google Cloud surging 82% to $24.8 billion.
- Alphabet raised $85 billion in debt and equity in June to fund its 2026–2027 AI spending plans.
- Wall Street is split — some analysts see the dip as a buying opportunity, others are warning on hyperscaler risk.
Alphabet posted a blowout second quarter — then the stock dropped 7%. That’s the story of Thursday on Wall Street.
GOOGL fell as low as $314.91, hitting $316.99 by mid-morning, on pace for its largest single-day market cap loss on record, according to Dow Jones Market Data. It was the worst performer in the Dow Jones Industrial Average on the day.
The results themselves were hard to argue with. Revenue came in at $119.8 billion, up 24% year over year. Google Cloud jumped 82% to $24.8 billion. Operating margins in Cloud nearly doubled to 35.6%. Search revenue rose 17%. Alphabet beat estimates across the board.
So why the selloff?
Free Cash Flow Goes Negative for the First Time
The number that rattled investors was free cash flow: negative $5.9 billion in Q2. That’s the first time in Alphabet’s history it has turned negative, according to LSEG data.
At the same time, management raised full-year capex guidance by $15 billion to a range of $195–$205 billion. 2027 spending is expected to be even higher.
Alphabet also raised $85 billion in debt and equity in June specifically to fund its AI infrastructure buildout for 2026 and 2027. That’s a lot of capital going out the door.
“GOOGL is exhibit A for why you need to be cautious on hyperscalers,” wrote Melius Research analyst Ben Reitzes. He added that free cash flow could stay negative into 2027, and that the company will likely continue issuing both debt and equity.
The concern isn’t just the size of the spend — it’s the question of return. Is Alphabet spending faster than it can convert that infrastructure into profit?
Analysts Are Split
Not everyone is hitting the sell button.
J.P. Morgan’s Doug Anmuth lowered his price target to $420 from $460 but kept his Overweight rating. He said his firm “would be buyers of Google on the pullback,” pointing to accelerating Cloud capacity delivery and strong demand signals.
Roth Capital’s Rohit Kulkarni also said he’d “buy on weakness,” though he acknowledged growing concern about the long-term capital requirements to keep Google competitive in AI.
Morgan Stanley’s Brian Nowak pointed to Alphabet’s “disciplined budgeting” and said management is more bullish today than a year ago on AI opportunities across enterprise and consumer.
The demand side does support the spend. Nearly 500 Gemini AI enterprise customers each processed over a trillion tokens in the past year. The Cloud backlog stands at $514 billion. Alphabet is even renting third-party compute from SpaceX just to keep up with near-term capacity shortages.
Forward P/E sits at 21.3x — not expensive for a company growing revenue at 24%.
Alphabet’s 52-week range runs from $187.82 to $408.61. Thursday’s drop puts the stock back to mid-April levels.
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