$GOOGL just released its Q2 2026 numbers and they're a blast. The CEO called it a record quarter. Estimates were beaten, yet the stock is falling. What more does the market want?? I'm still holding the stock.
Let's start with the pretty numbers.
- Revenue $119.8 billion, +24% year-over-year. That's the twelfth straight quarter of double-digit growth.
- Operating profit $40.7 billion, +30%
- Operating margin jumped to 34%
Cloud is the star of the show
Google Cloud posted revenue of $24.8 billion, +82% year-over-year. And even better, Cloud's operating profit leaped from $2.8 to $8.8 billion, so the margin climbed from around 20% to nearly 36%. That means AI infrastructure demand is real and Google is finally making serious money on it. CEO Pichai reports that nearly 90% of Fortune 100 companies use Gemini and the app has 950 million monthly active users.
The rest of the business is doing nicely too. Google Services $94.5 billion, +15%, with Search alone growing 17%, which is a pretty clear answer to everyone who feared that AI would kill Google Search. So far it looks the opposite. YouTube ads grew 13%.
What to watch out for
Revenue rose to $112 billion and EPS hit $9.11. Most of that increase isn't from the business but from paper gains on Google's equity holdings. Revaluation of stock investments added nearly $99 billion to profit, of which it directly contributed $6.26 to EPS.
Adjusted for that, real operating EPS is closer to $2.85 versus $2.31 last year.
What caused the stock drop (down -3.46% in aftermarket after the release)
Capital expenditures. Google invested $44.9 billion in infrastructure in a single quarter, compared to $22.4 billion last year. The effect? Free cash flow was negative for the quarter for the first time (-$5.9 billion). A company that for years printed cash like no other is now burning money faster than it earns it, because it's building AI capacity. And to fund that, they issued new shares and preferred shares worth $49.6 billion in recent months and bonds for another $20 billion. Berkshire acquired some of the newly issued shares and now $GOOG is the third largest position in Buffett's portfolio.
So what does it all mean?
The core business is in excellent shape, Cloud is flying and margins are growing. But that huge profit is largely an accounting illusion (revaluation of stakes, particularly in Anthropic) and at the same time the company is investing massively, sacrificing cash flow for the first time because of it.
In my view, the results are fine and I'm holding the stock. I don't plan to add or sell. Google thus remains my portfolio's largest position.
