Alphabet raises AI spending target to $205 billion as cloud demand surges

Tech giant lifts 2026 capital expenditure guidance by up to $15 billion after reporting robust cloud growth, signalling an even bigger bet on AI infrastructure

Alphabet, the parent company of Google, has raised its 2026 capital expenditure (capex) guidance to between $195 billion and $205 billion, up from its earlier forecast of $180-$190 billion, as it ramps up investments in artificial intelligence (AI) infrastructure.

 

The higher spending reflects soaring demand for AI computing capacity as Google races against Microsoft, Amazon and Meta to expand data centres and support increasingly complex AI models.

 

"We have increased our capacity quite significantly over the past three years. The demand still outpaces that investment," Reuters quoted Alphabet CFO Anat Ashkenazi as saying during the company’s earnings call on July 22.

 

Cloud growth drives bigger AI bet

 

Alphabet's decision follows a stronger-than-expected performance from its cloud business. Google Cloud revenue jumped 82 per cent year-on-year to $24.8 billion during the April-June quarter, comfortably ahead of market expectations, as enterprises accelerated spending on AI-powered cloud services.

 

The company’s total revenue rose to $119.8 billion, while advertising revenue remained resilient at $81.6 billion.

 

Ashkenazi said customer demand for AI infrastructure continues to outstrip available capacity, prompting the company to accelerate investments after bringing new computing capacity online faster than anticipated. She also indicated that capital expenditure is expected to rise further in 2027, the report said.

 

Investors worry over mounting costs

 

Despite the strong top-line performance, the higher spending plan weighed on investor sentiment. Alphabet shares slipped in extended trading after executives unveiled the revised capex outlook, reflecting investor concerns that the AI race could delay returns despite robust revenue growth.

 

Heavy AI investments pushed Alphabet into negative free cash flow during the quarter, with an outflow of $5.9 billion. Adjusted earnings per share of $2.85 came in slightly below analysts' expectations.

 

Google faces stiff competition from rivals such as OpenAI and Anthropic, particularly in AI coding tools, following delays to the launch of its Gemini 3.5 Pro model, Reuters reported.

 

According to Google CEO Sundar Pichai, the company has already begun training Gemini 4, and Alphabet remains committed to staying at the forefront of AI development.

 

Alphabet's latest spending increase comes as technology companies continue to pour record sums into AI infrastructure. Industry estimates suggest Big Tech firms are set to spend well over $700 billion on AI this year, with investment expected to exceed $1 trillion next year as competition intensifies, as per the report.