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(Sharecast News) - Shares in Alphabet came under pressure on Thursday, despite second-quarter revenues comfortably beating forecasts, as the Google parent once again ramped up spending on artificial intelligence.
Revenues spiked 24% in the three months to June end to $119.8bn, easily surpassing Wall Street forecasts for $117bn. Net income rocketed to $112.1bn from $28.2bn a year previously.
Within that, Google Cloud saw revenues accelerate 82% to $24.bn, which Alphabet said was driven by booming demand for AI infrastructure and solutions. Google Services posted a 15% jump in revenues to $94.5bn.
However, free cash flow turned negative at -$5.9bn, while its 2026 capex projection was once again boosted, to between $195bn and $205bn. Last quarter the range was forecast to be $180bn to $190bn.
Chief financial officer Anat Ashkenazi said: "We expect that free cash flow will remain under pressure, driven by our investments in technical infrastructure, which enable us to capitalise on the AI opportunity and continue to drive attractive returns.
"We have increased our capacity quite significantly over the past three years. The demand still outpaces that investment."
Sundar Pichai, chief executive, said: "Our AI investments are redefining what's possible across every part of our business.
"These outstanding results show that our differentiated, full-stack approach to AI is delivering real, measurable value for consumers, customers and our partners globally."
However, as at 1130 BST, the stock had shed 4% in pre-market trading. Alphabet published the results after the bell on Wednesday.
Russ Mould, investment director at AJ Bell, said: "Alphabet is spending hundreds of billions of dollars as it looks to stay ahead in the AI arms race, but there is still a healthy degree of scepticism about the ability of these investments to generate a commensurate level of return.
"Along with the mounting levels of capex, Alphabet is also facing higher operating costs, thanks to capacity issues and energy costs, which is expected to put pressure on margins. Alphabet sees this is a price worth paying to secure market share but when you combine this weakened profitability with cash flow pressures, it's easy to see why the market is uncomfortable."