Alphabet reports second-quarter earnings after the market closes today, with analysts expecting revenue of roughly $116.8 billion — up about 21% year-over-year — and earnings of approximately $2.89 per share. The company has beaten earnings estimates for several consecutive quarters, but its stock has pulled back from May highs heading into the report.
Why the Cloud Business Matters More Than Ever
Google Cloud grew 63% year-over-year last quarter, the fastest pace among major cloud providers. Total company revenue rose 22% to $109.8 billion in the previous quarter, and the cloud unit's profit margin nearly doubled. The cloud order backlog sits at roughly $460 billion, indicating years of future revenue already booked. Investors want to see that this backlog is converting into actual profit.
The $190 Billion Question: AI Capex
Alphabet has guided for $180 billion to $190 billion in capital spending by 2026, primarily for data centers and AI chips. To fund the AI buildout, the company raised fresh equity — breaking a decades-long habit of funding growth internally. The market wants proof that this spending is turning into durable profit, not just higher costs. Alphabet's custom AI chips, called Tensor Processing Units, are now being sold to outside customers, adding a potential new revenue stream.
Search Advertising Under the AI Microscope
Search advertising remains Alphabet's largest business. Investors want reassurance that AI-generated search summaries are not eroding traditional ad revenue. Some Wall Street analysts have rotated from Meta stock into Google, betting on Alphabet's cloud and chip business for clearer AI profits. But the bear case includes concerns about slow profit conversion and potential delays in the Gemini rollout.
What to Watch on the Earnings Call
Key factors to watch on the earnings call include management's comments on capital expenditure, cloud backlog conversion, and the Gemini timeline. Net income in the previous quarter was partly driven by unrealized gains on stakes in companies like SpaceX, so investors will be looking for underlying operational strength. The earnings call is scheduled for later today, and the market will be listening for specifics on how Alphabet plans to turn its AI investments into durable profit.
