Why Is Alphabet (GOOGL) Still Falling After a Record Q2 Beat?

TradingKey - Shares of Alphabet (NASDAQ: GOOGL) closed Thursday at $319.88 on July 24, a drop from Wednesday's opening price of $374.00. Alphabet shares have fallen two days in a row, though Alphabet reported 2nd quarter earnings results that beat every top line metric. On Thursday the stock traded from $314.91 to $328.34. The volume was 69.42 million, or more than double its normal volume of 30.86 million shares per day.

Alphabet's 2nd quarter earnings revenue of $119.8 billion rose 24%, Google Cloud revenue was up 82% to $24.8 billion, Cloud Operating margins increased 15 points to 36%, and the total Operating Margin was 34%. So why is the Alphabet stock down 7% in two days? The market reaction came from these three specific items after the earnings call.

Three Reasons Investors Were Spooked After the Earnings Beat

Here's the biggest: Capital expenditure (Capex) is going way up. Alphabet alone spent $44.9 billion in Q2 on AI Infrastructure, up 100% from the $22.4 billion it spent in Q2 2025. Alphabet's total spending commitments were up $500 billion over three months, according to an article published on Thursday. The $500 billion number included data centre contracts, equipment orders and infrastructure commitments since the 1st quarter. 

At $180 billion annualized in capital expenditure, Alphabet is investing more in a single year than the total annual revenue of most Fortune 500 companies, according to the article. Melius Research analyst Reitzes said on CNBC Thursday morning that he does not like hyperscalers because they are not generating free cash flow, which is the exact concern the $44.9 billion quarterly capex number surfaces.

Secondly, there was a new EU fine. On Thursday the European Commission fine Google a $1 billion dollar fine under the Digital Markets Act related to its Play app store and search. This follows up with previously announced DMA orders that Google will now have to provide 11 Android functions to rival AIs and also give anonymised search data. EU actions won't affect Alphabet's revenue near term, but they are setting a precedent of regulatory enforcement that will challenge Google's dominance in search, its app store and mobile operating systems in the EU. It's the first major regulatory push since the introduction of the General Data Protection Regulation (GDPR).

The third item is the $9.11 reported EPS versus the operating EPS of $2.90. As we covered in our article yesterday, the $9.11 headline EPS included $6 to $7 from an estimated one-time mark-to-market gain on Anthropic and SpaceX stakes. Alphabet's 2nd quarter SEC filing confirmed a $94 billion stake in SpaceX from the recent SpaceX IPO. 

Those gains will show up in the quarter and they will show up in accounting, but they won't show up in any given quarter at the same magnitude again going forward. And, they don't reflect the real operating performance of Alphabet's search, cloud and advertising business. That $2.90 operating EPS was in line with the $2.86 to $2.89 consensus estimate. It means the business delivered what everyone expected while the headline number created a gap between the reported EPS and the actual operating EPS.

The Bull Case For 63 Wall Street Analysts, Buy, $417 Average Target

Despite the drop in the stock today, the fundamental case for Alphabet is solid as 63 analysts say Buy with an average 12 month price target of $417.70. That is 31% upside on Alphabet shares from its current $319.88. On Thursday, the analysts at Freedom Broker upgraded Alphabet on Alphabet's earnings, noting that the pullback now opens up the investment opportunity to those who may have missed the recent run in the stock.

Google Cloud CEO Thomas Kurian on the earnings call stated that customers were spending 50% year-over-year on Google Cloud services, a demand metric that makes sense with the investments being made in infrastructure. Cloud margins moved from 17.8% to 32.9% in the first quarter. With cloud margins moving from 32.9% to 36% in Q2, that provides evidence the Cloud Capex is paying back faster than the bear case scenario. 

The Capex will not need to drop as long as Cloud margins can get to 40% on $25 billion in revenue. That's why Alphabet stock can drop yet continue to be a Buy for 63 Wall Street analysts. The current P/E price to earnings ratio at $319.88 is now down to 27 times trailing earnings. It is the lowest that it has been in years for a company growing revenue 24% year over year.

GOOGL Technical Setup

On the 4H chart, GOOGL is trading at $320.21, down from its 50 EMA at $346.82 and 200 EMA at $353.84 and its RSI sits deep in oversold territory at 25.6. In today's session, GOOGL has traded down as far as $314.91 which tested the previously noted $315.04 swing low. A hold above the $315.04 support should be the near-term bullish setup for a relief trade. If there is a hold above the $315.04 support, the next recovery targets are $325.62.

 Alphabet (GOOGL) Price Chart - Source: Tradingview

Further recovery should be $331.93 and $342.35. A close below $315.04 opens the path for the next leg lower with little obvious technical support until the $300 area. The oversold RSI makes a technical bounce more likely than a continuation in the short term. The trend remains negative below $346.82.

Key Levels

• Today's Range: $314.91 to $328.34. Trading at $319.88. Volume 69.42M compared with its 30.86M average.
• Q2 Actuals: Rev $119.8B (+24%). Cloud +82% to $24.8B margin 36%. Op margin 34%.
• Capex Concern: $44.9B in just Q2. Spending commitments +$500B over 3 months. FCF negative.
• EU Fine: $1B DMA fine on Play app store and search (July 24).
• SpaceX stake: $94B confirmed in Q2 filing, which is the source of $6-$7 EPS inflation in headline.
• Support: $315.04 swing low (critical). Recovery targets: $325.62, $331.93, $342.35

Bottom Line

Alphabet fell from $374 to $319 over the past two days despite posting its best quarterly revenue growth in years, 82% growth in Cloud, and expanding margins. The selloff is reasonable: $44.9 billion in Q2 Capex, $500 billion in new spending commitments, a $1 billion EU fine, and the revelation that $6 to $7 of the headline $9.11 EPS is unrealized investment gains. 

All these facts were real concerns that weren't fully addressed in the earnings call. The 25.6 RSI reading is deeply oversold, making a bounce off $315 support more likely than a continuation in the near term. 63 analysts rate GOOGL as a Strong Buy with a consensus price target of $417. The operating business continues to grow 24% with a 34% margin. 

Whether the Capex will create margin expansion in Cloud soon enough to make its cost worthwhile, remains a debate, but so far the market votes no.