Alphabet just had a strong quarter. Really strong. But investors weren’t fully impressed — and that says a lot about where things stand right now.

The company reported $119.8 billion in revenue for the quarter ending June 30. That’s up 24% from last year, and it beat what analysts were expecting, which was around $117 billion. This is Alphabet’s 12th quarter in a row with double-digit growth. Not a small streak.

Profit numbers looked even bigger on paper. Net income hit $112.1 billion, almost four times higher than the $28.2 billion from a year ago. Earnings per share came in at $9.11. But here’s the catch: a big chunk of that jump — about $98 billion — came from gains on investments the company holds, including stakes in Anthropic and SpaceX. Not from selling ads or running Cloud servers. Just paper gains.

Cloud was the real story

Google Cloud grew 82% this quarter, hitting $24.8 billion in revenue. That’s a big jump from 63% growth just one quarter before. Businesses are paying for AI tools and AI infrastructure, and Cloud is where that demand is showing up. Operating income for Cloud roughly tripled to $8.8 billion. The backlog of future work also grew, now sitting at $514 billion.

Ads are still doing fine too. Search revenue rose 17% to $63.3 billion. YouTube ads brought in $11.1 billion, up 13% and slightly ahead of what Wall Street expected. CEO Sundar Pichai also talked about “Ask YouTube,” a Gemini-powered feature that lets people ask questions about a video and jump straight to the part they want. He said over 140 million people used it in June alone.

Want to understand why investors were closely watching AI spending and Google Cloud before the results? Check out our Alphabet Q2 Earnings Preview for the full analysis.

Spending is going up fast

This is where things get interesting. Alphabet spent $44.9 billion on capital expenses this quarter — double what it spent a year ago. Most of that is going into data centers and chips for AI. To help pay for it, the company raised $49.6 billion by issuing stock in June, plus another $20.3 billion through bonds.

Pichai also shared some numbers on Gemini: the models now handle 22 billion tokens per minute, up from 16 billion last quarter. The Gemini app has 950 million monthly users. And on the business side, he said nearly 90% of Fortune 100 companies are now using Gemini Enterprise.

So why did the stock drop?

Despite beating expectations almost everywhere, Alphabet’s stock fell more than 6% after the report came out. It seems investors are less worried about this quarter and more worried about what comes next — specifically, how much money is going into AI spending, and whether it’ll keep paying off at this pace.

The company will still pay its usual dividend, 22 cents a share, on September 14.

And the rest

Investors are expected to closely watch Google Cloud’s growth, AI infrastructure spending, advertising performance and future guidance in the coming quarters as Alphabet continues expanding its artificial intelligence business.

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