Alphabet raises AI investment target to up to $205 billion after strong Q2 performance

Google parent Alphabet has again increased its annual AI infrastructure spending target after reporting stronger-than-expected second-quarter revenue, reflecting growing enterprise demand for cloud and AI services despite mounting infrastructure costs and investor concerns.

Alphabet has raised its planned capital expenditure for 2026 to between $195 billion and $205 billion, underscoring its commitment to expanding artificial intelligence infrastructure amid intensifying competition in the AI industry. The revised guidance marks the company's second upward revision this year and follows a robust second-quarter financial performance driven by growth in advertising and cloud computing.

The Google parent reported second-quarter revenue of $119.8 billion, surpassing market expectations, while net profit reached $112.1 billion. The company, however, clarified that its earnings included substantial unrealised gains resulting from the revaluation of its investment portfolio, which includes holdings in companies such as SpaceX and Anthropic.

Cloud and AI investments accelerate

Alphabet's latest spending forecast reflects its continued push to expand data centre capacity and computing infrastructure required to support AI applications. During the April-June quarter alone, the company invested nearly $45 billion in capital expenditure, largely directed towards AI-focused infrastructure and cloud capabilities.

The company had initially projected annual capital spending in the range of $175 billion to $185 billion before revising it to $180 billion to $190 billion earlier this year. The latest increase lifts the upper end of expected expenditure to $205 billion, signalling that Alphabet expects demand for AI infrastructure to remain strong.

Google Cloud continued to be a key contributor to growth during the quarter, generating $24.77 billion in revenue, an increase of 82% compared with the same period last year. The performance exceeded analyst estimates and highlighted growing enterprise adoption of cloud services, AI infrastructure and generative AI solutions.

Commenting on the company's strategy, Chief Executive Officer Sundar Pichai said Alphabet is integrating artificial intelligence across its products and services, positioning AI as a long-term engine of business growth.

Advertising remains strong despite AI shift

Google's advertising business also maintained momentum despite rapid changes in online search driven by generative AI technologies. Revenue from Search advertising rose nearly 17% year-on-year to $63.27 billion, indicating that advertisers continue to invest heavily in Google's core search platform.

Looking ahead, Chief Financial Officer Anat Ashkenazi indicated that capital expenditure is likely to increase further in 2027, suggesting that Alphabet intends to sustain elevated investment levels as competition in AI infrastructure intensifies.

Despite reporting better-than-expected quarterly results, Alphabet's shares fell about 2% in after-hours trading, reflecting investor concerns over the scale of the company's AI spending and its potential impact on future profitability. The company also noted that rising prices of key hardware components, including memory chips, have contributed to higher infrastructure costs as demand for AI data centres continues to surge.