Alphabet is getting “ambitious” when it comes to AI. Don’t get too ambitious with GOOGL stock.

Alphabet (GOOG) (GOOGL) announced its financial results for the second quarter of 2026 after the market closed yesterday, July 22nd. Earnings were mixed, with the company winning on the top line but falling short on the bottom line. However, the stock is lower today as investors worry about ever-increasing capital spending to build out artificial intelligence (AI) infrastructure. In a previous article, I pointed out that although GOOGL sold for less than Berkshire Hathaway (BRK.A) (BRK.B) in its private placement in June, the stock was not a blockbuster buy. Let’s take a look at Alphabet’s outlook and consider whether GOOGL stock is an attractive buy now.

Alphabet Q2 Earnings Snapshot

First, let’s take a look at the headline numbers from Alphabet’s second quarter report. Sales rose 24% year over year to $119.8 billion, beating analysts’ expectations of $116.9 billion. Google search revenue grew 17% year-over-year, slightly below expectations, while YouTube ad revenue rose 13%, beating expectations. But what caught our attention was the 82% increase in cloud revenue. For context, consensus estimates are calling for growth of 63%, which is similar to the growth rate the company posted in the previous quarter.

Alphabet’s cloud revenue is growing much faster than its two biggest rivals, Amazon (AMZN) and Microsoft (MSFT). The company’s cloud order backlog, which includes chips, rose by more than $50 billion from the first quarter to more than $500 billion.

However, the impressive growth in cloud revenue was slowed by two factors. First, the company said it expects margin pressure in the near term as it uses third-party computing power to compensate for the mismatch between supply and demand. Second, we have increased our 2026 capital spending budget to between $195 billion and $205 billion, which is $15 billion higher than our previous guidance.

Investors, on the other hand, were willing to overlook the capex hike announced in the first-quarter earnings call, sending the stock soaring nearly 10%, but they’re not as forgiving this time around, with the stock trading around the same amount and in the opposite direction despite huge cloud revenue growth.

Alphabet is getting ambitious with AI

Alphabet has been quite aggressive with its capital spending on AI, and while management hasn’t said much about its 2027 budget, the overall tone of the company’s second-quarter earnings call seems to suggest that the budget may only be bigger than this year.

The company is particularly optimistic about Gemini 4, with CEO Sundar Pichai calling it “ambitious” three times during the conference call. “We wanted to compete at the frontier level of where the frontier will be when Gemini 4 launches. So we’re putting a lot of computational power and effort in that direction,” the Alphabet CEO said.

Don’t get ambitious about GOOGL stock just yet

To its credit, Alphabet has emerged as an AI winner, allaying fears that it will lose its turf to AI startups. The company has several growth levers, including tensor processing units (TPUs), which should sustain healthy revenue growth for the foreseeable future. The company began delivering TPUs to customers’ data centers in the second quarter, and although it doesn’t disclose its backlog (which is a portion of its overall cloud balance), it expects the “vast majority” of revenue from existing contracts to be realized next year.

GOOGL stock’s valuation has also been revised due to the fall from its 2026 high, and the stock is currently trading at a forward price/earnings ratio (PER) of 24.5 times. I believe GOOGL’s short-term risk-reward should start to become even more favorable as the post-earnings selloff brings the stock down to near $300, at which point I will actively add the stock to my existing holdings.

As of the date of publication, Mohit Oberoi held positions at GOOG, AMZN, and MSFT. All information and data in this article are for informational purposes only. For more information, please see the Barchart Disclosure Policy here.