Alphabet Stock Price Dips Despite Strong Q1 Results as Capex Guidance Raises Concerns

Alphabet's stock price dipped after hours despite strong Q1 2026 results. The company reported $109.9 billion in total revenue, a 22% year-over-year (YOY) increase and exceeding consensus estimates by $2.7 billion. Google Cloud generated $20.03 billion in revenue, up 63% YOY and surpassing expectations by $1.98 billion.

The cloud operating margin rose to 32.9%, a significant improvement from 17.8% in Q1 2025. CEO Sundar Pichai attributed the strong growth to demand outstripping supply, stating that the company could have generated higher revenue if it had been able to meet customer demands.

The $462 billion backlog in Google Cloud contracts nearly doubled from the previous quarter and is expected to convert into revenue within three years. However, the free cash flow margin fell from 21% to 9.2%, a nearly 12 percentage point drop that wiped out most of the operating margin growth in Google Cloud.

The company updated its capital expenditure (capex) guidance for 2026 to $180-190 billion and expects capex to increase significantly in 2027, further compressing free cash flow margins. This has led investors to value Alphabet shares based on near-term free cash flow generation rather than long-term growth prospects.