The Q2 results Alphabet released on July 22 local time (early July 23 Korea time) were an earnings surprise, beating expectations on both revenue and cloud. And yet the stock slipped about 5% in after-hours trading. The reason ultimately comes down to one thing: by pledging to raise 2026 capital expenditure (capex) to as much as $205 billion (about 303 trillion won), the company saw its Q2 free cash flow turn negative. Since this is the first report card of the Big Tech earnings season we previewed on this blog yesterday, let’s take the numbers apart one by one. 📊

TL;DR

  • Q2 revenue came in at $119.8 billion (+24%) and Google Cloud revenue at $24.8 billion (+82%), both topping market forecasts.
  • Net income surged 298%, but most of that came from roughly $99 billion in unrealized gains on stakes such as SpaceX. To read the core business, the 30% rise in operating income is the more accurate gauge.
  • Raising 2026 capex to as much as $205 billion, with Q2 capex hitting a record $44.9 billion, pushed free cash flow to -$5.9 billion — and that was the trigger for the stock’s decline. That said, the spending ramp is favorable for Korea’s HBM and server DRAM demand.

📈 How Strong Were the Results — Revenue Up 24%, Operating Income Up 30%

Q2 was a strong scorecard with every key metric rising by double digits. According to Alphabet’s release, Q2 (April–June) consolidated revenue reached $119.796 billion (about 177 trillion won), up 24% from a year earlier. That topped the market forecast (about $116.9 billion) and marked the 12th straight quarter of double-digit revenue growth. Operating income rose 30% to $40.77 billion, and the operating margin improved by 2 percentage points to 34%. By segment, Google Services (ads, YouTube, subscriptions, and so on) grew 15% to $94.5 billion, with search advertising at $63.271 billion (+17%) and YouTube ads at $11.055 billion (+13%).

☁️ Why Google Cloud’s 82% Jump Matters

The star of these results is Google Cloud, which soared 82%. Cloud revenue of $24.768 billion (about 37 trillion won) blew past the market forecast (about $22.46 billion). It reflects a rush of demand for the infrastructure companies need to develop and run AI models. Even more striking is profitability: the cloud segment’s operating income tripled from $2.8 billion a year ago to $8.8 billion, decisively shedding the “loss-making, low-margin business” label that had long trailed it. CEO Sundar Pichai cited enterprise AI adoption as evidence, noting that “nearly 90% of the Fortune 100 are using Gemini Enterprise.” The read is that cloud has established itself as a second growth engine alongside advertising.

🧮 Net Income Jumped 298% — Should You Take It at Face Value?

The 298% surge in net income looks stunning on paper, but much of it is an accounting valuation gain rather than the core business. Q2 net income (attributable to common stockholders) was $112.107 billion (about 166 trillion won), up 298% year over year, and diluted EPS was $9.11, up 294%. Yet the heart of that surge is roughly $99 billion in equity valuation gains booked under “other income.” It is an unrealized gain from rising values of stakes Alphabet holds in private companies such as SpaceX — not cash that came in, nor money earned from core operations like ads and cloud. Alphabet itself spelled out that this equity gain lifted net income by $77.1 billion and diluted EPS by $6.26. In other words, to gauge the real strength of the underlying business, you should look at operating income growth (30%) rather than net income growth (298%).

💸 Why the Stock Fell — Record Capex and Negative Cash Flow

The reason the stock dropped despite strong results lies in a record-breaking investment bill. Alphabet raised its full-year 2026 capex guidance to as much as $205 billion (about 303 trillion won) — up again from the $180–190 billion range it laid out last month. In fact, Q2 capex hit a quarterly record of $44.924 billion, and as a result Q2 free cash flow flipped to -$5.855 billion. Compared with the prior quarter (+$10.1 billion) or the same period last year (+$24.5 billion), that is a sharp reversal. Alphabet also raised about $49.6 billion through a June issuance of stock and convertible preferred shares, plus another $20.3 billion in senior notes. In the end, the market weighed “when will this astronomical investment pay off?” more heavily than “strong results,” and the shares slid about 5% after hours. Bulls and skeptics are squarely at odds over the scale of AI spending and the timing of returns.

🇰🇷 What Signal Does This Send to Samsung and SK Hynix?

Alphabet’s spending ramp reads as a favorable signal for Korea’s chip industry. Pledging to spend more on capex means demand for the HBM (high-bandwidth memory) and server DRAM that go into AI data centers keeps flowing. According to Korean media, UBS forecasts that SK Hynix will be the first supplier of the HBM3E used in Google’s latest AI accelerators (TPUs), the ‘v7p’ and ‘v7e.’ If Alphabet’s second-half investment accelerates and orders for HBM and server DRAM actually rise, warmth could spread to Samsung and SK Hynix earnings from that point. Conveniently, SK Hynix reports final Q2 results on the 29th and Samsung on the 30th, so we can gauge within this week whether the signal Alphabet sent shows up in domestic companies’ results.

📌 The Bottom Line — “Growth Confirmed, but the Bill Grew Bigger”

These results clearly showed that AI is genuinely growing Alphabet’s revenue (cloud +82%, operating income +30%). At the same time, they revealed that the investment needed to sustain that growth has swelled enough to push free cash flow into the red. Three points to watch. First, don’t be dazzled by the 298% net-income headline — look at core-business profit stripped of equity gains (operating income +30%). Second, whether record capex is actually recouped through cloud revenue growth is the key question ahead. Third, for domestic investors, the most important thread is whether Alphabet’s spending ramp shows up as HBM demand in the SK Hynix and Samsung results due on the 29th–30th. The first answer sheet to the “capex test” we previewed yesterday shows growth and burden at the same time.

※ This article is for informational purposes only and does not constitute investment advice.

Sources