Alphabet raised its full-year capital expenditure guidance to $195 $205 billion on Wednesday, and that single line in an otherwise stellar earnings report sent shares down 2.8% in premarket trading Thursday. The company had just posted Q2 earnings per share of $9.11 on revenue of $119.8 billion, beating Wall Street on both counts. Investors took one look at the bill and sold.

The top-line story was hard to dismiss. Revenue climbed 24% from the $96.4 billion Alphabet reported in Q2 a year ago. Remaining performance obligations, essentially the backlog of contracts not yet fulfilled, landed at $514 billion, well above the $488.1 billion analysts had penciled in. That number points to sustained enterprise demand, not a one-off quarter.

Cloud blew past even the optimistic models

Google Cloud was the standout. Revenue hit $24.77 billion, an 82% jump from $13.6 billion in the same quarter last year, and above the analyst consensus of $24.56 billion. For context, the cloud division had only just crossed the $20 billion threshold for the first time last quarter. Analysts had expected roughly 64% year-over-year growth, so the actual print was a meaningful surprise. CEO Sundar Pichai credited "demand for AI infrastructure and AI solutions" for the acceleration.

Advertising held up too. Google's ad business brought in $81.63 billion against a forecast of $81.12 billion. YouTube advertising rose 13% to $11.06 billion, topping a StreetAccount estimate of $10.81 billion. Search grew 17% to $63.3 billion, a hair below the expected $63.4 billion. Gene Munster of Deepwater Asset Management flagged that small search miss as one reason early investor enthusiasm stayed muted.

The spending news complicated everything. The prior capex range had been $180 $190 billion. Bumping it to $195 $205 billion signals that Alphabet intends to keep pouring money into AI infrastructure, even as it disclosed a delay of its Gemini 3.5 Pro model over capability concerns and confirmed it is developing a new efficiency chip internally, codenamed Frozen v2. More spending, a delayed flagship model, and a new chip project all arriving in the same report gave investors plenty to chew on beyond the headline beats.

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