Alphabet (GOOGL, GOOG) delivered a Q2 revenue and earnings per share beat backed by big upside from its Cloud business, but an increase in capital expenditures is stealing the spotlight, BofA Securities said in a note Thursday.
To boost capacity deployment and meet demand, Google raised its 2026 capex guide by $15 billion, or about 8%, to $195 billion to $205 billion.
The increase drove a negative share price reaction, but multiple data points indicate that capacity is supporting solid returns, including the $50 billion Q2 quarter on quarter backlog growth to $514 billion, which is well above the $15 billion 2026 capex increase, according to the note.
Despite the capex-related pushback by investors, an acceleration in the company's Cloud business as well as margin strength and backlog growth "suggest capex is driving immediate returns," the investment firm said, as it highlighted that cloud margins rose 270 basis points quarter on quarter and nearly 15 points year on year.
For Q3, the firm raised its revenue estimate by 3% and EPS by 1% to $3.07 from $3.03.
BofA Securities its buy rating and $430 price target on the stock.
Shares of Alphabet were down 6.9% in Thursday trading.
Price: $318.49, Change: $-23.61, Percent Change: -6.90%