Why did Google stock fall despite Q2 earnings beat?

Google parent delivered a strong Q2 2025 with double‑digit growth across search, YouTube and cloud segment However, stock closed in the red according to Google Finance data. So, why did the investors react negatively when almost every headline metric beat expectations?

Well, the answer lies in the company’s cash flow. Alphabet’s massive investment plans overshadowed the otherwise stellar earnings report. Let’s break down what happened and decode Google’s earnings report in detail.

Google Earnings Report: What happened with Cash Flow?

Alphabet’s management lifted full‑year capital expenditure (Capex) guidance from around $75 billion to $85  billion. This aggressive investment in data centers and AI infrastructure drove Q2 CapEx to $22.45  billion, up 70% from a year ago.

The company’s free cash flow in the quarter fell sharply to $5.3 billion, down 70% YoY. This sudden but massive drop, triggered concerns about near‑term cash generation even though the company reported higher profits. Investors initially focused on the cash flow strain before digesting the long‑term AI and cloud growth story.

Here’s a look at Google’s Q2 Financials

Source: Google Earnings Report

Even with a large legal settlement charge, Google’s operating margin stayed at 32% which shows cost discipline despite heavy investments.

Search and Ads Still Power Google’s Growth Engine

Source: Google Earnings Report

Google’s Search revenue grew at 12% in Q2 with AI features like AI Overviews driving higher engagement. Its flagship video platform YouTube also delivered 13% ad growth because of  direct response ads and brand campaigns. The company’s subscriptions, platforms and devices revenue rose 20% to $11.2 billion.

According to Google, AI Overviews in search are generating over 10% more queries for covered topics. AI Mode has crossed 100 million monthly active users in the US and India, showing rapid adoption and a flywheel for ad growth.

Google Cloud was the standout performer for Alphabet, growing 32% YoY to $13.62 billion in revenue. The segment’s operating profit also surged from $1.17 billion to $2.83 billion. Enterprise adoption is accelerating:

• The number of cloud deals over $250 million doubled in a year.
• First‑half signings of billion‑dollar contracts matched the entire tally of 2024.
• Cloud’s annual revenue run‑rate now exceeds $50 billion.

This shift shows a structural improvement in Google’s business mix, as Cloud margins expand alongside top‑line growth.

Regional Breakdown of Alphabet’s Q2 Earnings

Source: Google Earnings Report

In Q2, Alphabet’s growth was broad‑based, with APAC leading at 19% as AI features gained traction in high‑growth markets.

What does Google's Q2 Earnings tell about the future plans?

Google’s headcount rose just 4% to 1.87 lakh employees. The company’s Q2 2025 earnings report initially disappointed investors as they focused on near‑term free cash flow compression and heavier CapEx. But with strong demand for AI products, improving cloud profitability, Alphabet is looking at long-term opportunities with its AI investments.

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