Alphabet's massive profit growth is 'illusory', as SpaceX and Anthropic help mask a historic cash drain

By Hannah Pedone

Earnings quadrupled on paper, but an analyst says that performance was propped up by unrealized gains from equity investments

Alphabet's electric profit growth has been propped up by paper gains on equity stakes.

Alphabet was once a cash-flow machine, but it's seeing a fall from grace.

The company just reported its first-ever quarter of negative free cash flow on the heels of an unrelenting artificial-intelligence spending spree. It's become the subject of fierce debate on Wall Street, especially since Alphabet (GOOG) (GOOGL) also lifted its capital-expenditure forecast for the year, leaving room for that spending to surpass $200 billion.

The Google parent currently expects $195 billion to $205 billion in capital expenditures for the full year, up from a previous estimate of $180 billion to $190 billion.

Another issue is that Alphabet's blowout earnings growth isn't what it looks like. The company posted $9.11 in earnings per share, up almost 300% from a year before. But Richard Windsor, an independent analyst at Radio Free Mobile, said the company is relying on the "illusory security of a series of unrealised investment returns that will evaporate at the first hint of trouble."

Alphabet's profits have been propped up by paper gains from the company's equity stakes in SpaceX (SPCX) and Anthropic, he noted. The company reported a $98 billion increase in "other income," which it said was "primarily the result of net unrealized gains on our equity securities."

"There is no cash flow attached to them and they could easily be reversed," Windsor wrote of the equity impacts.

See also: IBM just cut its outlook, but not by as much as investors feared

The jury is still out on whether Alphabet's AI spending is worthwhile. The company saw 82% growth in Google Cloud revenue during the second quarter, but to justify spending at current levels, Alphabet needs to continue to grow its cloud business at a "breakneck pace" and deliver "excellent operating margins for some considerable time to come," Windsor said.

"The problem is that what was once supported by steady growth and terrific cash flow is now propped up by speculative unrealised gains as well as expectations and hopes that the promised returns from colossal spending will materialise as promised," he wrote.

Alphabet's Class A shares slid 7.1% on Thursday's open, their worst one-day performance since May 7, 2025, according to Dow Jones Market Data. Alphabet lost $293.8 billion in market cap Thursday, the company's largest one-day loss on record, and the sixth-worst one-day market-cap loss ever for a U.S. company, according to Dow Jones Market Data.

"Although the past 12 months have been fun and fulfilling being Alphabet bulls, it feels like the road could be a bit bumpier in the near term as industry competition and capital ramp to once unimaginable heights," MoffettNathanson analyst Michael Nathanson wrote in a Thursday note.

-Hannah Pedone

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07-23-26 1617ET