Alphabet’s profit growth called ‘illusory’ as $98B in unrealized gains mask negative cash flow

Alphabet reported Q2 2026 revenue of $119.8 billion, but an analyst called the profit growth 'illusory' after $98 billion in unrealized gains from equity stakes in Anthropic and SpaceX masked negative free cash flow of $5.9 billion. The company raised its full-year capital expenditure guidance to between $195 billion and $205 billion, driven by AI spending, while Google Cloud revenue surged 82% to $24.8 billion.

Alphabet’s profit growth called ‘illusory’ as $98B in unrealized gains mask negative cash flow Earnings quadrupled on paper, but analysts warn that equity investment windfalls and massive AI spending are hiding a cash drain problem at Google's parent company Alphabet just reported Q2 2026 revenue of $119.8 billion, a 24% jump year over year. On the surface, that looks like a company firing on all cylinders. Look a little deeper, though, and the engine is burning oil. The headline-grabbing profit figure was inflated by $98 billion in unrealized gains from equity securities, primarily stakes in Anthropic and SpaceX. Strip those paper profits away and the picture changes dramatically: Alphabet posted negative free cash flow of $5.9 billion. An analyst described the quarter’s performance as “illusory,” and investors apparently agreed, sending shares lower after the earnings release. The AI spending machine eats cash Alphabet raised its full-year capital expenditure guidance to between $195 billion and $205 billion for 2026. The spending is showing results in at least one division. Google Cloud revenue hit $24.8 billion in the quarter, surging 82% year over year. A substantial chunk of that growth came from Anthropic’s commitments to use Google Cloud services, creating a somewhat circular dynamic where Alphabet’s investment in Anthropic fuels cloud revenue that Alphabet then reports as organic growth. Gemini, Alphabet’s AI assistant app, reached 950 million monthly active users. Unrealized gains are not cash in the bank The $98 billion in unrealized gains deserves special scrutiny. These are paper profits from equity positions that Alphabet hasn’t sold. Anthropic’s valuation reportedly surged to approximately $965 billion, which has ballooned the value of Alphabet’s stake on its balance sheet. Unrealized gains are accounting artifacts. They inflate earnings per share, which came in at $9.11 for the quarter, but they don’t generate a single dollar of spendable cash. The negative free cash flow of $5.9 billion means Alphabet is currently spending more cash than it generates from operations after accounting for capital expenditures. What this means for crypto and digital asset markets Alphabet doesn’t hold meaningful positions in major cryptocurrency protocols, so there’s no direct transmission mechanism from its earnings to crypto prices. The explosive growth in Google Cloud revenue reflects genuine enterprise demand for AI infrastructure. When the world’s largest companies are spending hundreds of billions on AI compute, the overflow demand could benefit decentralized alternatives that offer cheaper or more accessible processing power. The Anthropic valuation story intersects with crypto’s own AI narrative. Anthropic reaching a $965 billion valuation validates the thesis that AI companies can achieve enormous scale, but it also raises questions about whether these valuations are sustainable without corresponding cash flows. The gap between Alphabet’s reported EPS of $9.11 and its negative $5.9 billion in free cash flow is the kind of disconnect that historically precedes either a dramatic operational turnaround or a painful reckoning. For crypto investors, the signal is straightforward: watch the cash, not the headlines. Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy https://cryptobriefing.com/editorial-policy/ .