Alphabet Earnings Put AI Spending in the Spotlight
Alphabet is scheduled to release its second-quarter 2026 earnings after the market closes on Wednesday.
However, Wall Street may pay less attention to the company’s headline revenue and profit figures than usual. Instead, investors are expected to focus heavily on Alphabet’s artificial intelligence spending and its capital expenditure outlook.
Analysts at Wolfe Research said Alphabet’s quarterly investment levels and guidance for the rest of the year could matter more than the company’s reported earnings.
Wall Street Expects Strong Revenue Growth
Analysts expect Alphabet to report earnings per share of approximately $2.87 to $2.90.
Second-quarter revenue is forecast to reach between $116.8 billion and $116.93 billion. That would represent annual growth of roughly 21.3%.
Google Cloud is expected to remain one of the company’s strongest growth engines.
Wall Street forecasts suggest that Google Cloud revenue could increase by 64% to 65% compared with the same quarter last year. Citi analysts are even more optimistic, predicting growth of approximately 68.5%.
The cloud business previously generated $20 billion in revenue during the first quarter, marking an annual increase of 63%.
Alphabet Capital Expenditure Becomes the Key Metric
The most important figure in the Alphabet earnings report may be capital expenditure.
In April, Alphabet increased its full-year 2026 capital expenditure forecast to between $180 billion and $190 billion.
That represents a dramatic increase from the $32.3 billion the company spent in 2023.
During the first quarter, Alphabet’s capital expenditure climbed 107% year over year to $35.7 billion. The quarterly investment figure was almost twice as large as Google Cloud’s total revenue during the same period.
Investors will now examine whether second-quarter spending points toward the upper or lower end of Alphabet’s full-year forecast.
Any further increase in guidance could raise concerns about the enormous cost of building AI infrastructure.
Alphabet Could Spend More Than $300 Billion in 2027
Raymond James analysts warned that Alphabet could forecast more than $300 billion in capital expenditure during 2027.
That would exceed Wall Street’s current estimate of approximately $261 billion.
The company is spending heavily on data centres, artificial intelligence chips, cloud infrastructure, energy capacity and other technology required to support advanced AI models.
These investments may strengthen Alphabet’s long-term position. However, they are also placing pressure on the company’s cash generation.
Free Cash Flow Falls as AI Investment Rises
Alphabet’s free cash flow declined 46.3% during the first quarter to $10.1 billion.
The sharp decrease was mainly linked to the company’s accelerating infrastructure investments.
Therefore, investors will look for signs that Alphabet can eventually convert its AI spending into stronger revenue and profit growth.
Management may also face questions about how long it will take for these investments to generate attractive returns.
Alphabet Raises Capital to Support AI Expansion
Alphabet has taken several steps to strengthen its financial position and support its growing investment requirements.
Since the end of the first quarter, the company has reportedly issued $20 billion in debt.
It also announced a gross equity raise worth approximately $84.75 billion, which included an investment from Berkshire Hathaway.
According to io-fund.com, these transactions could leave Alphabet with a pro forma cash position of roughly $190 billion.
This financial flexibility may help the company continue expanding its AI and cloud infrastructure without immediately limiting investment in other parts of the business.
Google Cloud Backlog Supports the Bullish Case
Alphabet’s cloud order backlog remains a central part of the bullish investment case.
The company reported a backlog of approximately $462 billion during the first quarter. That figure nearly doubled from the previous quarter.
Chief Financial Officer Anat Ashkenazi previously said Alphabet expects to convert more than half of the backlog into revenue within 24 months.
Investors will want confirmation that this timeline remains realistic.
They will also look for evidence that second-quarter cloud growth supports the company’s backlog conversion targets.
Custom AI Chips Give Alphabet a Cost Advantage
Alphabet may have an important advantage over several competitors because it develops its own Tensor Processing Units.
These custom AI chips allow the company to process artificial intelligence workloads without relying entirely on Nvidia’s graphics processors.
As a result, Alphabet may avoid some of the high costs associated with purchasing external AI chips.
Chief Executive Sundar Pichai said during the first-quarter earnings call that Gemini was processing approximately 16 billion tokens per minute through its direct API in late April.
If Google Cloud continues to expand, Alphabet’s custom chip strategy could support stronger profit margins over time.
Gemini Delays Raise AI Competition Concerns
Despite Alphabet’s infrastructure advantages, concerns about its AI execution have increased since the first quarter.
Reuters reported that the company delayed the launch of Gemini 3.5 Pro, which had originally been expected in June.
The delay has raised questions about Alphabet’s position in coding tools, AI agents and other rapidly developing areas of artificial intelligence.
Raymond James analysts said investors are likely to focus closely on the Gemini 3.5 Pro release schedule.
The absence of a June launch may have changed market perceptions of Alphabet from an AI leader to a company at risk of falling behind faster-moving competitors.
Alphabet Faces Intense AI Development Cycles
The artificial intelligence sector is advancing at an unusually rapid pace.
Major AI laboratories, open-source developers and newer technology companies are releasing frequent model upgrades throughout the year.
This creates constant pressure on Alphabet to improve Gemini and introduce new products before competing platforms gain market share.
Even a relatively short product delay can influence investor confidence when the competitive environment is moving so quickly.
Key AI Executives Leave Alphabet
Alphabet has also lost several important AI researchers and executives.
Gemini co-lead Noam Shazeer reportedly left the company to join OpenAI.
Nobel laureate John Jumper also departed Google DeepMind for a competing organisation, according to Reuters.
These departures may increase concerns about Alphabet’s ability to retain leading AI talent during a period of intense competition.
However, the company still has one of the largest artificial intelligence research organisations in the technology industry.
Alphabet Stock Trails Some Magnificent Seven Rivals
Alphabet shares have fallen approximately 9% since the company released its first-quarter results in late April.
The stock has underperformed several other members of the Magnificent Seven during that period.
Nevertheless, Alphabet shares remain around 13% higher in 2026, making the company the second-best performer in the group so far this year.
A strong earnings report could help restore investor confidence. However, weaker guidance or higher-than-expected spending could place additional pressure on the stock.
Alphabet Earnings Could Affect the Entire Technology Sector
The implications of Alphabet’s results extend beyond the company itself.
The four largest cloud infrastructure providers spent a combined $129.8 billion on capital expenditure during the first quarter of 2026.
That represented an annual increase of approximately 81%.
UBS expects their combined full-year capital expenditure to rise 76% to around $673 billion.
These enormous investments have supported demand for semiconductors, memory chips, networking equipment and data-centre infrastructure.
AI Spending Guidance Could Move Chip Stocks
If Alphabet reports weaker capital expenditure or reduces its long-term spending plans, the effects could spread across the technology sector.
Semiconductor manufacturers and memory chip suppliers rely heavily on continued spending from major cloud providers.
The Bank for International Settlements warned that a slowdown in Big Tech infrastructure investment could have a cascading effect across the global technology trade.
Therefore, Alphabet’s comments about AI returns and future spending may influence companies far beyond the Magnificent Seven.
More Big Tech Earnings Are Approaching
Alphabet’s earnings report will be followed by several other important technology results.
Intel is scheduled to report on Thursday, July 23. Its results could provide more information about data-centre and semiconductor demand.
Microsoft, Amazon and Meta are expected to release their earnings during the week of July 28.
Alphabet’s capital expenditure figures may shape investor expectations for all three companies.
For now, the key question is whether Alphabet can convince Wall Street that its record AI investments will eventually generate enough growth to justify the cost.
