Alphabet Inc. beat earnings and revenue expectations on Tuesday afternoon, but investors still sent its stock lower by the end of the extended session.

There were a few things to nitpick in the latest numbers. YouTube revenue came in lighter than expected and decelerated relative to first-quarter numbers. Management said that YouTube faced easier comparisons in the first quarter, when it was up against a period of negative growth, whereas second-quarter results were up against the start of ramping advertising revenue from Asia-based e-commerce players — presumably Temu and the like.

Alphabet shares were down more than 2% in premarket trading on Wednesday.

But the bigger issue to investors might be something that emerged during the company ’ s earnings call, as Alphabet executives called out some trends that could impact margin expansion in the third quarter. Headcount could rise in the third quarter as the company hires college graduates, and Alphabet also faces the prospect of greater "depreciation and expenses associated with higher levels of our investment in technical infrastructure," President Ruth Porat said on the earnings call.

Wall Street may be worried about the rate at which the Google parent will be able to widen its margins in the immediate future, according to Melius Research analyst Ben Reitzes.

"The reason the reaction to this print may be muted is due to comments that seemed to temper the pace of margin expansion," he wrote in a note to clients.

Reitzes flagged Alphabet ’ s 32.4% overall operating margin in the June quarter, which topped the consensus view. But "any comments that limit the pace of this expansion get noticed, given the ‘ efficiency ’ theme," he wrote. Alphabet and others internet companies have tried to be more cost-conscious after past investor criticism over rampant hiring and posh employee benefits.

A key factor driving spending nowadays is hardware needed to power the big artificial-intelligence ambitions held by Alphabet and rivals like Meta Platforms Inc., Amazon.com Inc. and Microsoft Corp.. That gets back to Porat ’ s comments that, in the third quarter, "operating margins will reflect the impact of both the increases in depreciation and expenses   associated with the higher levels of investment in our technical infrastructure," among other factors.

"Given the recent [ capital-expenditure ] surges at Alphabet and leading clouds, depreciation commentary could be worth watching on the EPS and gross margin lines for many of the Magnificent 7 including Microsoft, Amazon and Meta," Reitzes wrote.