Alphabet Is Getting ‘Ambitious’ With AI. Don’t Get Ambitious With GOOGL Stock.

Alphabet (GOOG) (GOOGL) released its Q2 2026 earnings yesterday, July 22, after the close of markets. The earnings were a mixed bag, with the company beating on the top line and missing on the bottom line. The stock is, however, down today as investors fret over the ever-growing capex to build artificial intelligence (AI) infrastructure. In my previous article, I noted that while GOOGL slipped below Berkshire Hathaway’s (BRK.A) (BRK.B) buying price in the June private placement, the stock wasn’t a screaming buy. I'll look into Alphabet’s outlook and examine whether GOOGL stock is a compelling buy now.

Alphabet Q2 Earnings Snapshot

Let’s begin by looking at the headline numbers from Alphabet’s Q2 report. Revenues increased 24% year-over-year (YoY) to $119.8 billion, with the number coming in ahead of the $116.9 billion that analysts were expecting. Google Search revenues rose 17% YoY, which was slightly below estimates, while YouTube ad revenues rose 13%, beating estimates. What stole the show, however, was the 82% growth in cloud revenues. For context, consensus estimates called for a 63% growth, which was similar to what the company posted in the previous quarter.

Alphabet’s cloud revenues have been growing much faster than those of Amazon (AMZN) and Microsoft (MSFT), two of its bigger rivals. The company’s cloud order backlog, which also includes chips, rose by over $50 billion as compared to Q1 and surpassed $500 billion.

The stellar growth in cloud revenues was, however, dampened by two factors. First, the company said that it expects margin pressure in the near term as it is using third-party compute capacity to make up for the demand-supply mismatch. Second, it raised its 2026 capex budget to between $195 billion and $205 billion, which is $15 billion higher than the previous guidance.

Meanwhile, while investors were willing to overlook the capex hike announced during the Q1 earnings call and sent the stock soaring nearly 10%, this time around they are not as forgiving, and the stock is trading by almost the same amount in the opposite direction despite the mammoth growth in cloud revenues.

Alphabet Is Getting Ambitious With AI

Alphabet is getting quite aggressive with AI capex, and while the management did not provide much color on the 2027 budget, the overall tone of the Q2 earnings call seems to suggest that the budget might only be higher than this year.

The company is particularly optimistic about Gemini 4, with CEO Sundar Pichai terming it as “ambitious” thrice during the call. “We wanted to compete at the frontier level of where the frontier will be when Gemini 4 comes out. And so, we are applying a lot of our compute and effort in that direction,” said the Alphabet CEO.

Don’t Get Ambitious With GOOGL Stock Yet

To its credit, Alphabet has emerged as an AI winner, and the company has successfully allayed fears of it losing its turf in search to AI upstarts. The company has several growth levers, like tensor processing units (TPUs), which should keep its topline growth healthy over the near foreseeable future. The company started delivering TPUs to customer data centers in Q2, and while it does not provide the order backlog (which is part of the overall cloud backlog), the company expects the “vast majority” of revenues from its existing agreements to be realized next year. 

Thanks to the drawdown in GOOGL stock from its 2026 highs, its valuations have also corrected, and the stock now trades at a forward price-to-earnings (P/E) multiple of 24.5x. I believe GOOGL's near-term risk-reward should start getting a lot more favorable as the stock dips closer to $300 in the post-earnings meltdown, at which point I would aggressively add more shares to my existing holdings.