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FollowingKey points
Alphabet shares plunged 7% on Thursday after the company recorded its first negative quarterly free cash flow of-5.9 billion.
Management has raised its forecast for artificial intelligence infrastructure spending in 2026 by $15 billion, currently expected to be between $195 billion and $205 billion.
Second-quarter revenue increased 24% year-on-year to US$119.8 billion, of which Google cloud revenue surged 82% to US$24.8 billion.
The technology giant raised $85 billion in debt and equity financing in June to fund artificial intelligence spending until 2027.
Market analysts remain divided-some see the decline as a tempting entry point, while others warn of rising capital needs.
Alphabet delivered impressive second-quarter results, but its share price fell 7%. That was Wall Street's paradox on Thursday.
Alphabet Inc. (GOOGL) shares fell to $314.91 at one point and traded around $316.99 around noon, which may be the largest one-day drop in market value in the company's history, according to Dow Jones Markets data. The stock led a decline in the Dow Jones Industrial Average on Thursday.
The quarterly results themselves were undoubtedly strong. The company achieved revenue of US$119.8 billion, a year-on-year increase of 24%. Google cloud revenue surged 82% to $24.8 billion. The operating profit margin of the cloud business almost doubled to 35.6%. Search revenue increased by 17%. Every major indicator exceeded Wall Street expectations.
What triggered this plunge?
Alphabet records negative free cash flow for the first time
The indicator that scares the market is free cash flow: minus $5.9 billion in the second quarter. This marks a milestone in Alphabet's history-the first time in the company's history that it has experienced negative quarterly free cash flow, according to LSEG data.
At the same time, executives raised their full-year capital expenditure forecasts by $15 billion, setting a new range of $195 billion to $205 billion. The company expects further increases in spending in 2027.
Alphabet completed a $85 billion capital raise in June through debt and equity financing, specifically for artificial intelligence infrastructure expansion in 2026 and 2027. This represents a huge capital outflow.
Ben Reitzes, an analyst at Melius Research, pointed out: "GOOGL is a classic example of caution towards very large companies." He believes free cash flow may remain negative until 2027 and expects to continue issuing debt and equity in the future.
Concerns are not limited to the size of spending-the core is the return on investment. Can Alphabet monetize infrastructure quickly enough to justify these expenditures?
Wall Street is divided on outlook
Not all analysts have turned bearish.
J.P. Morgan's Doug Anmuth lowered his price target to $420 from $460, but maintained its overmatched rating. He said his team "will buy into Google during a pullback" and emphasized accelerated cloud infrastructure deployments and strong demand indicators.
Roth Capital's Rohit Kulkarni also recommends "buying when weak" while acknowledging growing questions about the continued capital needed to maintain Google's AI competitiveness.
[TAG 40]Morgan Stanley's Brian Nowak highlighted Alphabet's "rigorous budgeting" approach and noted that management is more optimistic about AI's prospects in the enterprise and consumer space than it was 12 months ago.The demand environment validates aggressive spending. In the past 12 months, nearly 500 corporate Gemini AI customers have each processed more than 1 trillion tokens. Cloud backlog orders totaled US$514 billion. Alphabet has even leased third-party computing power from SpaceX to address current capacity constraints.
The forward P/E ratio is 21.3 times-relatively moderate for a company that achieves a 24% revenue growth.
Alphabet's 52-week trading range is $187.82 to $408.61. Thursday's sell-off sent shares back to levels not seen since mid-April.
