Alphabet Raises AI Spending as Pichai Flags Gemini Coding Gap

Alphabet is racing OpenAI, Anthropic and Microsoft to secure computing capacity and turn generative AI into durable revenue across Search, Gemini and Google Cloud. Enterprise demand for AI infrastructure has made cloud the company’s fastest-growing major business, but the strategy requires unprecedented spending on servers, data centers and networking. Investors are increasingly testing whether those outlays can earn adequate returns, while Gemini’s relative weakness in software coding has become a visible measure of Google’s competitiveness.

Alphabet on July 22 reported second-quarter 2026 revenue of $119.8 billion, up 24%, while Google Cloud sales surged 82% to $24.8 billion. Quarterly capital expenditure doubled to $44.9 billion, pushing free cash flow to negative $5.9 billion, its first quarterly cash burn on record. The company lifted its 2026 capex forecast to $195 billion-$205 billion from $180 billion-$190 billion. CEO Sundar Pichai acknowledged coding still needs improvement as Gemini 3.5 Pro remains in testing, and the spending increase sent shares down 4.5% after hours.