Alphabet Q2 Revenue Beats Estimates as Cloud Revenue Jumps 82%

Free Cash Flow Turns Negative Despite a 12th Straight Quarter of Double-Digit Growth

Alphabet Inc., Google’s parent, said July 22 that second-quarter revenue and operating profit topped market estimates. Its cloud business extended rapid growth as the company ramped up investment in artificial intelligence infrastructure, but a surge in capital expenditures pushed quarterly free cash flow into negative territory.

SpaceX Listing Triggers $99 Billion Valuation Gain

Alphabet said second-quarter revenue rose 24% from a year earlier to $119.8 billion, exceeding the $116.9 billion analyst estimate compiled by LSEG.

The company posted its 12th consecutive quarter of double-digit revenue growth.

Operating profit increased 30% from a year earlier to $40.77 billion, while operating margin improved 2 percentage points to 34%. Net income surged 298% to $112.1 billion, and diluted earnings per share came in at $9.11, well above the market estimate of $2.89.

The jump in net income was driven largely by an accounting gain rather than by core operating improvement. Alphabet recorded a $99 billion valuation gain on unlisted equity securities it holds, sharply boosting pretax profit. The gain came after SpaceX, in which Google held about a 5% stake, listed on Nasdaq on July 12. Alphabet said the valuation gain lifted earnings per share by $6.26. Excluding that item, operating EPS was about $2.85, roughly in line with market expectations.

Cloud Drives Growth

Google Cloud revenue rose 82% from a year earlier to $24.8 billion, leading overall growth. Operating profit in the cloud unit more than tripled to $8.8 billion, increasing its contribution to earnings. Chief Executive Officer Sundar Pichai said in the earnings release that 90% of Fortune 100 companies are using Gemini Enterprise.

Google Services revenue rose 15% to $94.5 billion. Search and other revenue increased 17% to $63.3 billion, while YouTube advertising revenue rose 13% to $11.1 billion. Popular AI features are driving growth in search queries, Pichai said. The Gemini app has 950 million monthly active users, and Gemini model API token processing has reached 22 billion per minute, according to the company.

Second-quarter capital expenditures doubled from a year earlier to $44.9 billion from $22.4 billion. As a result, quarterly free cash flow swung to negative $5.85 billion, even as cash flow from operations rose 41% to $39.1 billion.

To fund the increase in investment, Alphabet raised $30.5 billion through common stock issuance in the second quarter, $19.1 billion through convertible preferred stock issuance and $24.8 billion through bond sales. The large-scale external fundraising suggests the AI infrastructure investment cycle has yet to peak.

By region, the Americas led growth with revenue up 32%. Europe, the Middle East and Africa rose 15%, while Asia-Pacific increased 17%.

Alphabet also said its board approved a quarterly dividend of 22 cents a share for Class A, B and C stock in July. The dividend is scheduled to be paid on Sept. 14.

Kim In-yeop, Silicon Valley correspondent at Korea Economic Daily, inside@hankyung.com