Alphabet just reported Q2 2026 revenue of $119.8 billion, a 24% jump year over year. On the surface, that looks like a company firing on all cylinders. Look a little deeper, though, and the engine is burning oil.
The headline-grabbing profit figure was inflated by $98 billion in unrealized gains from equity securities, primarily stakes in Anthropic and SpaceX. Strip those paper profits away and the picture changes dramatically: Alphabet posted negative free cash flow of $5.9 billion. An analyst described the quarter’s performance as “illusory,” and investors apparently agreed, sending shares lower after the earnings release.
The AI spending machine eats cash
Alphabet raised its full-year capital expenditure guidance to between $195 billion and $205 billion for 2026.
The spending is showing results in at least one division. Google Cloud revenue hit $24.8 billion in the quarter, surging 82% year over year. A substantial chunk of that growth came from Anthropic’s commitments to use Google Cloud services, creating a somewhat circular dynamic where Alphabet’s investment in Anthropic fuels cloud revenue that Alphabet then reports as organic growth.
