Alphabet said demand for AI computing capacity continues to outstrip the pace at which it can expand its own infrastructure, and the company plans to rely more heavily on third-party compute starting in the third quarter of this year. The remarks came from Chief Financial Officer Anat Ashkenazi during the latest earnings call. After the comments, shares tied to emerging cloud compute providers such as Nebius and CoreWeave moved higher in after-hours trading on July 22.
Alphabet raises capex guidance as demand stays ahead of supply
Alphabet reported second-quarter earnings on July 22 U.S. Eastern Time and raised its full-year 2026 capital expenditure forecast to $195 billion-$205 billion, up from its earlier guidance of $180 billion-$190 billion. The company said the increase reflects faster spending on computing capacity to meet continued demand growth. It also said 2027 capital expenditure would rise “meaningfully.”
Ashkenazi said on the call, “Over the past three years, we have significantly expanded our own computing capacity, but the rate of market demand growth continues to exceed our investment.” The report added that Google Cloud revenue rose 82% year over year in the second quarter, with growth driven mainly by strong demand for AI infrastructure and AI solutions.
Third-party compute to expand in Q3, with near-term pressure on margins
To address the capacity gap, Alphabet is turning to external cloud providers for leased computing resources. Ashkenazi said, “Given continued supply tightness, we plan to expand our use of third-party compute in the third quarter as an alternative strategy until our internal capacity build-out is completed. This strategy allows us to keep expanding our customer base and capture larger commercial opportunities, but it will also create some pressure on gross margins in the short term.”
Chief Executive Officer Sundar Pichai said the added cost of external compute over the next several months could be high, but he argued that returns remain attractive over the full life of the contracts as Alphabet scales its own capacity over time.
The report said large technology companies have recently been expanding their access to outside compute resources. Alphabet has reached an agreement with SpaceX to lease Nvidia GPUs for $920 million per month to support AI model workloads. Microsoft, meanwhile, has also leased compute from multiple NeoCloud providers, including CoreWeave, IREN, Lambda Labs, Nebius and Nscale.
NeoCloud-linked stocks rise after hours
After Alphabet signaled broader use of third-party computing resources, a range of cloud and AI infrastructure stocks traded higher after hours on July 22:
- SharonAI Holdings (SHAZ): up 1.83%
- Nebius Group (NBIS): up 4.06%
- CoreWeave (CRWV): up 2.77%
- Hut 8 Corp. (HUT): up 0.81%
- IREN Ltd (IREN): up 2.13%
- TeraWulf (WULF): up 1.49%
Recent updates from IREN, Hut 8 and Nebius
At the company level, IREN, which the report described as a bitcoin miner transitioning into an AI data center operator, said on July 20 that it had signed multiyear cloud service contracts with several AI developers. The total contract value could reach $2.8 billion. At the same time, it raised its year-end AI cloud annual recurring revenue target to more than $4.0 billion from $3.7 billion.
Hut 8 Corp. said it signed a 15-year lease valued at $9.8 billion tied to its Beacon Point data center campus in Texas. Hut 8 said the existing tenant had doubled contracted capacity to 704 megawatts.
For Nebius, Nvidia disclosed after the July 20 market close in a filing with the U.S. Securities and Exchange Commission that it held a 9.3% stake in the company, equal to 22.26 million shares.