Alphabet (GOOGL) shares fell approximately 7% in after-hours trading after the company reported Q2 2026 results that beat Wall Street expectations but raised concerns over the scale of its artificial intelligence infrastructure spending.

The company reported total quarterly revenue of $119.80 billion, up 24.2% year over year and above Wall Street’s projection of $116.53 billion. Earnings per share came in at $9.11, far ahead of the consensus estimate of $2.87.

Despite the stronger-than-expected headline results, GOOGL traded about 20% below its recent peak following the earnings release. The decline came after Alphabet raised its 2026 capital expenditure outlook to a range of $195 billion to $205 billion, compared with its prior forecast of $180 billion to $190 billion. The company deployed $91 billion in the previous year. The market reaction highlighted the tension facing large technology companies as they expand AI infrastructure while investors assess how quickly those investments translate into revenue growth, cash flow and margins.

Google Search generated $63.3 billion in revenue during the quarter, its highest quarterly total to date and a 17% increase from a year earlier. Alphabet said artificial intelligence features including AI Overviews and AI Mode are driving higher user engagement. AI Mode has reached 1 billion monthly active users globally.

Alphabet’s Cloud division posted the strongest growth among the company’s major segments, with revenue rising 82% to $24.8 billion. The unit’s order backlog stood at $514 billion at the end of June, up $50 billion from the first quarter. The Search and Cloud results together showed that Alphabet’s core advertising engine and enterprise infrastructure business are both central to the company’s AI strategy.

AI Infrastructure Spending Draws Scrutiny

The main concern for market participants was the scale and accounting impact of Alphabet’s infrastructure investment program. Data centers and semiconductor equipment are depreciated over time rather than expensed immediately, which means current spending commitments may weigh on profit margins over multiple years.

Alphabet generated negative free cash flow of $5.8 billion in Q2 when excluding a $98 billion mark-to-market gain on equity stakes in companies such as Anthropic and SpaceX. That investment portfolio appreciation lifted reported earnings per share, while the exclusion of the gain points to a weaker operating cash generation profile. For investors, the key issue is not only the size of the AI buildout but also the distinction between reported earnings boosted by investment gains and cash flow from Alphabet’s operating businesses.

Analysts Remain Largely Positive

Most analysts cited in the report remained constructive despite the share price decline. Royal Bank of Canada kept its buy rating and $475 price target. Cantor Fitzgerald maintained an overweight rating while lowering its target price from $435 to $420. Freedom Capital upgraded its recommendation to strong buy.

The consensus analyst price target was $410.09. The stock had 30 buy ratings, 6 strong buy ratings and 3 hold ratings.

Alphabet also declared a quarterly dividend of $0.22 per share, payable on September 14 to shareholders of record as of September 7.

The company is also facing regulatory pressure in Europe. European Union authorities imposed an antitrust fine of approximately $1 billion on Alphabet. Regulatory scrutiny remains an additional factor for investors to monitor alongside AI spending, particularly because Alphabet’s largest businesses operate at significant scale in digital advertising, search and cloud services.

Company insiders sold $7.67 million worth of shares over the previous 90 days, including transactions by CAO Marsida Saraci and Director John L. Hennessy.

GOOGL opened Friday’s session at $319.09, below its 50-day moving average of $360.63 and its 200-day moving average of $337.38.