Alphabet’s Cloud Surge and AI Dominance Overshadow Capex Fears and Keep Me Buying Alex Sirois Fri, October 16, 2026 at 12:45 PM EDT 5 min read GOOG -1.90% MSFT -2.10% AMZN -1.47% Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Google Cloud revenue growth hit 82% in Q2 2026, with a $460 billion backlog and 90% of Fortune 100 using Gemini Enterprise.
GOOGL returned 39% over the past year, nearly seven times MSFT's 6% and double AMZN's 18%.
Q2 capex doubled to $45 billion, turning free cash flow negative, but operating cash flow surged 41% to $39 billion.
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I keep adding to my Alphabet (NASDAQ:GOOGL) position, and every earnings report supports my thesis. Wall Street spent the summer worrying about how much Alphabet spends. I spent it reading what Alphabet makes.
My thesis: Alphabet owns the world's dominant search engine and the largest online video platform, and it is putting that cash into a cloud and AI business that keeps growing faster. The established business pays for the new one. In a retirement portfolio built to compound for decades, I want that combination.
Google Cloud revenue grew 34% in Q3 2025, 48% in Q4, 63% in Q1 2026 and 82% in Q2 2026, when it reached $24.77 billion. Customers are signing long commitments: the cloud backlog nearly doubled from the prior quarter to over $460 billion in Q1. Nearly 90% of the Fortune 100 use Gemini Enterprise, and Gemini models process 22 billion API tokens per minute. The Gemini app has reached 950 million monthly active users.
Total Q2 revenue came in at $119.80 billion, up 24.23%. That makes the 12th straight quarter of double-digit growth. Search and other brought in $63.27 billion, up 17%, as AI features lifted query growth. Operating margin expanded by 2 points to 34%, and operating income rose 30.38% to $40.77 billion.
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I discount the headline EPS of $9.11, because a $99.03 billion gain on equity securities ballooned net income. Operating income is the number I track. Even so, Alphabet trades at about 16 times earnings. The company raised its dividend 5% to $0.22 per quarter. The 0.49% yield is small, yet a rising payout backed by 175.5x interest coverage shows discipline.
Spending is the part that worries me. Q2 capex reached $44.92 billion, up 100.14%, which pushed free cash flow to negative $5.86 billion. Management guided 2026 capex to $175 billion to $185 billion. Long-term debt grew from $46.5 billion to $98.2 billion, the buyback is suspended, and a $49.6 billion net equity raise reduces my stake. If AI demand stalls, all of that hardware turns into dead weight. All of that spending also has to be powered, cooled and networked by somebody, and we put seven of those suppliers in a free AI infrastructure report.
My thesis still holds because the demand shows up in the numbers. Operating cash flow rose 40.8% to $39.07 billion in Q2, and debt-to-equity is only 0.143. Much of the new capacity is going to backlog that customers have already signed. A Barron's report on October 15 highlighted J.P. Morgan's view that Google can resist AI fears.
Each quarter I watch three numbers: cloud growth, backlog and operating margin. As long as they hold, I keep adding. Alphabet makes money today while building its cloud and AI infrastructure, and I plan to own both for as long as I invest.
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