Alphabet shares dropped 7.1% after CFO Ruth Porat flagged elevated AI capex. Operating margin narrowed to 28% vs. 30% expected. The stock now trades at 22x forward earnings, its lowest multiple in two years.
Alphabet shares fell 7.1% Friday, their sharpest drop since October 2023, after the company disclosed a steeper-than-expected jump in capital spending tied to artificial intelligence infrastructure.
Chief Financial Officer Ruth Porat told analysts on the earnings call that capital expenditures would stay elevated through year-end, with most of the increase going to data centers and AI chips. The spending plan, she said, reflected Alphabet's push to keep pace with Microsoft and Amazon in the AI race.
Revenue for the quarter hit $84.7 billion, up 14% from a year earlier and roughly in line with analyst estimates. The margin compression from the capex push caught investors off guard. Operating margins narrowed to 28% from 32% a year ago, a bigger decline than the 30% consensus had expected.
Cloud revenue rose 29% to $10.3 billion, beating estimates by about $200 million, as enterprise customers signed up for Gemini-powered services. Google Services revenue, which includes search and YouTube ads, grew 11% to $64.6 billion, slightly below the $65 billion analysts had modeled.
The stock now trades at roughly 22 times forward earnings, its lowest multiple in two years. Alphabet holds a 70 out of 100 Alpha Score, a Moderate rating, reflecting the broader sector selloff.
Porat said the company would not provide a formal capex forecast beyond the current quarter. The next update on spending plans will come with third-quarter results in October.
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