This morning, after regular trading hours, Google's parent company Alphabet released its earnings report for the second quarter of 2026.

From the core data, this financial report is almost flawless:

• Revenue of $119.8 billion, a year-over-year increase of 24%, exceeding market expectations of $116.9 billion

• Earnings per share (EPS) of $9.11, far exceeding market expectations of approximately $2.9

• Operating profit of $40.8 billion, a year-over-year increase of 30%, slightly exceeding expectations of $40.4 billion

• Cloud revenue of $24.8 billion, significantly higher than the expected $22.4 billion

• Capital expenditures of $44.9 billion, slightly above the expected $44.2 billion

Shortly after the data was released, chip stocks like SK Hynix, Micron, and SanDisk, which are considered "shovel sellers," saw their prices rise by 1.5% to 3% in after-hours trading. It can be said that Hynix and others really need to thank Google for this financial report—at a time when the market's concerns about AI capital expenditures are deepening, Google has proven with solid numbers: the money is still being spent.

However, paradoxically, the stock price of the report issuer—Google—turned downward in after-hours trading, dropping about 2% at the time of writing.

Why would a "perfect" financial report lead to a decline in its own stock price?

1. The "Cost" Behind $44.9 Billion in Capital Expenditures

The issue lies in a key indicator: Free Cash Flow.

Google reported a negative free cash flow of $5.86 billion. This is the first time Google has experienced negative quarterly free cash flow since its IPO in 2004.

What were the market expectations? Negative $230 million. Google's actual figure was a stunning 25 times worse than expected.

What is free cash flow? Simply put, it is the cash that the company can actually pocket after deducting all operating expenses and capital expenditures. A negative number means that Google spent more in one quarter than it earned from its business—by a large margin.

The $44.9 billion in capital expenditures essentially tells the market: Google is fully committed to "going all in" on AI. Exceeding expectations in cloud revenue, increasing operating profit, and rising overall revenue—all this money ultimately flows to the same destination: data centers, GPU clusters, power facilities, etc.

The reason chip companies rose in after-hours trading is that they are positioned upstream of this "money-burning funnel." For every extra dollar Google spends on AI infrastructure, a significant portion eventually flows to the suppliers of storage chips, GPUs, and network equipment. The unexpected capital expenditures are directly equivalent to an unexpected increase in orders for these "shovel-selling" companies.

However, Google’s shareholders have clearly begun to grow weary of this pattern of "limitless spending."

2. The Arms Race is No Longer Unconditionally Praised by the Market

Google's free cash flow collapse is not an isolated incident. It is merely a reflection of the collective "going all in" on AI by tech giants.

Recent news has reported similar crazy investments:

• OpenAI is reportedly planning to invest $30 billion to build new data centers

• SpaceX has announced plans to build large-scale data centers in Texas, USA

• Google's $44.9 billion in capex this quarter has pushed its annual capital expenditure guidance close to $180 billion

  Just a few months ago, this "race to spend" would have been interpreted by the market as "determination" and "foresight," with stock prices often rising after exceeding capex expectations. But now, the winds have changed.

The market is transitioning from "celebrating investments" to "demanding returns." Investors are beginning to ask a sharper question: After burning so much money, when can we actually see matching returns?

Google’s cloud revenue of $24.8 billion indeed looks impressive, but can it cover the increasingly heavy depreciation, leasing, and power costs? How is the user experience and monetization efficiency of the AI search feature (AI Overviews)? The answers to these questions are still unclear.

When free cash flow turns from positive to negative—and the negative is far worse than expected—it sends an unsettling signal: Google is using shareholders' money to gamble in a manner that has no clear timetable and no explicit return promises.

3. The AI Narrative is Intact, but the Phase of "Unconditional Faith" has Ended

From the above analysis, a relatively clear conclusion about the current market landscape can be drawn:

The AI narrative itself has not fallen apart. Google’s revenue growth, strong performance in cloud services, and sustained expansion in capital expenditures—all indicate that the wave of demand for AI infrastructure continues. The support chip stocks (Hynix, Micron, SanDisk) received from this financial report is real and data-backed.

However, the phase of "unconditional faith" may be ending. The market is no longer willing to pay an unlimited premium for a vague "future story." The collapse of free cash flow, the arms race-style spending, and the yet-to-be-realized monetization pathways are causing investors to reassess the risk-reward ratios of these giants.

For chip stocks, this means a subtle shift: their demand side (cloud vendors' capex) remains strong in the short term, but if cloud vendors' shareholders start to pressure for cost-cutting, the growth rate of that demand side could also show marginal slowdowns in the coming quarters.

4. In Conclusion: While Pursuing AI, Leave Yourself an Out

The current situation can be summarized as follows: The long-term narrative of AI still exists, but short-term valuation pressures are rising.

If you are optimistic about the long-term prospects of chip stocks and the AI sector, but are also concerned that the giants' "unrestrained spending" will eventually provoke a market backlash—then rather than oscillating between fear and greed, it is better to use tools to manage risk.

The BIT brokerage options functionality was officially launched this week, providing the perfectly matched tools for this "bullish direction, bumpy process" environment:

• Hold chip stocks + buy put options: Although Google's financial report is favorable for chips, subsequent capex growth may slow down—use options to insure your holdings, locking in downside risk

• Buy call/put options in one direction: Use funds far below the underlying stock to bet on direction volatility after the financial report, with maximum losses limited to the premium

• Simultaneously buy in both directions: Not sure if Google will continue to "go all in" or is forced to "hit the brakes"? Bet on both sides and profit as long as the volatility is large enough

The AI arms race continues, but smart participants know: When charging forward, wear a bulletproof vest.

Disclaimer

The content of this article is for reference only, compiled based on publicly available information, and does not guarantee accuracy, completeness, or timeliness. It does not constitute any investment advice, nor does it constitute an offer to buy, sell, or hold any financial product. The market and individual stock situations have uncertainties, and past performance does not represent future returns. Trading in derivatives, such as options and margin trading, involves high risk and may lead to a total loss of principal or premium. Please make prudent decisions based on your investment objectives and risk tolerance, and do not trade merely to obtain rewards. Consult a professional advisor if necessary.

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