Alphabet earnings preview: Gemini delay and AI capex weigh on investor sentiment
Analysts forecast 21.3% revenue growth to $116.93 billion, driven by cloud sales, but shares have fallen 9% since late April amid concerns over AI coding competition and capital allocation.
Alphabet is set to report second-quarter results on Wednesday, with analysts forecasting a 21.3 per cent rise in revenue to $116.93 billion. The growth is expected to be driven primarily by the cloud business, which is estimated to expand at a 64 per cent pace, supported by multi-billion-dollar agreements with Meta Platforms and Anthropic for custom AI chips. Ad revenue, by contrast, is projected to grow at a more modest 13.7 per cent.
Despite the strong financial outlook, investor scrutiny has intensified following the postponement of Gemini 3.5 Pro, the company’s next flagship model originally scheduled for a June launch. The delay, which Alphabet attributes to the need to better compete in AI coding and agentic AI tasks, has raised concerns about the company’s ability to keep pace with rivals in these lucrative segments.
This setback coincides with heightened anxiety over the return on massive data-centre investments. In April, Alphabet raised its 2026 capital expenditure guidance to between $180 billion and $190 billion and announced plans to raise approximately $85 billion in equity offerings, including an investment from Berkshire Hathaway. These steep AI bills have fanned fears that Big Tech could be over-building capacity, particularly as Chinese open-source models increasingly challenge top US labs for customers.
Market reaction has been subdued, with Alphabet shares falling approximately 9 per cent since late April. This decline lags other members of the "Magnificent Seven" group, although the stock remains nearly 13 per cent higher for the year, making it the second-best performer in that cohort. The period has also seen high-profile departures, including Gemini co-lead Noam Shazeer and Nobel laureate John Jumper, who have moved to rival firms.
Portfolio managers note that while the coding delay is a concern, Alphabet’s strategic advantage lies in its ecosystem. Dave Wagner, portfolio manager at Aptus Capital Advisors, stated that while Google may be missing the boat on AI coding, its strategy remains focused on its large consumer distribution network, cloud infrastructure, and custom silicon.
