Alphabet (GOOGL) saw its stock tumble after reporting weaker-than-expected cloud revenue in Q2, sparking new doubts about its artificial intelligence strategy. Despite heavy investment in Gemini and other AI initiatives, Google’s growth is lagging behind rivals like Microsoft. Investors are asking the question Alphabet hoped to avoid, is all this AI hype actually profitable?

While Alphabet beat on total revenue and advertising, its cloud division, the business segment most closely tied to enterprise AI, missed expectations. Google Cloud reported $9.58 billion in revenue, below Wall Street’s forecast of $9.75 billion. That miss triggered concern because it's the same segment where Microsoft just posted record-breaking growth thanks to AI-related Azure demand.

Meanwhile, Alphabet’s AI efforts are burning cash. The company nearly doubled its capital expenditures this quarter to over $12 billion, largely to fuel its AI infrastructure. That spending weighed on margins, which came in lighter than analysts hoped.

One of the biggest takeaways from this earnings season is how sharply Microsoft and Alphabet are diverging. Microsoft’s cloud revenue grew 23%, driven largely by businesses adopting AI tools through Azure. Alphabet’s 28% cloud growth looks solid at first glance, but it’s decelerating, and it missed expectations at a time when peers are accelerating.

The optics matter. Investors are rewarding AI monetization, not just AI ambition. Alphabet’s Gemini assistant may be powerful, but it hasn’t yet delivered a product that consumers or enterprises are paying for in droves.

Some analysts believe Alphabet is still positioned for long-term AI leadership. Others are more skeptical, noting that the company has been promising AI breakthroughs for years without clear financial payoff.

“Google has the research horsepower, but Microsoft has the enterprise pipeline. Right now, Wall Street prefers monetization over moonshots,” said one analyst.

Alphabet says its AI investments will eventually pay off, especially in advertising and cloud. But the market wants to see those gains sooner rather than later. If Google Cloud can’t catch up to Azure, or if Gemini fails to scale commercially, Alphabet’s AI strategy may look more like a science experiment than a growth driver.

For now, the stock is trading like a warning: investors are no longer giving AI the benefit of the doubt.

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