Alphabet (GOOGL.O), the parent company of Google (GOOG), will release its second-quarter 2026 earnings after the U.S. market closes on Wednesday. As investors await more evidence that AI investments can translate into commercial returns, the company is facing stricter market scrutiny than in the past.
Over the past few months, Alphabet had significantly boosted market confidence due to strong performance in its cloud business. The company previously reported a 63% year-over-year increase in Google Cloud sales for a quarter, prompting investors to reassess its AI infrastructure layout.
However, recently, a key advancement in Alphabet's artificial intelligence field has been delayed. The company had originally planned to launch its next-generation flagship model, Gemini 3.5 Pro, in June. This model was highly anticipated, with the goal of catching up with competitors in high-margin AI programming tools and agentic AI tasks.
According to foreign media reports, Google postponed the release of Gemini 3.5 Pro due to concerns about its performance compared to other leading models.
The model delay has also intensified market worries about the efficiency of AI investments. As Chinese open-source models like Kimi K3 continue to challenge top U.S. AI labs, investors are beginning to reassess the necessity for tech giants to build data centers, procure chips, and expand computing capabilities on a massive scale.
Dave Wagner, portfolio manager at Aptus Capital Advisors, said:
"Google missing out in the AI programming space is indeed a growing problem... but the core of Google's strategy lies in its ecosystem."
The pressure on Alphabet comes not only from product release timelines but also from changes in the AI competitive landscape. In recent years, AI companies have continuously launched more powerful models, and enterprise customers' demands for model performance, cost, and deployment efficiency have kept rising. Any delay in key products could give competitors room to catch up.
A Google spokesperson responded: "We are rapidly rolling out multiple models while ensuring these models are highly cost-effective for customers. Currently, we are testing 3.5 Pro, upgraded Flash models, and other models with partners and are actively engaged in relevant collaborations with the U.S. government."
AI Infrastructure Investments Expand, Capital Market Focuses on Profit Realization
Alphabet has been steadily increasing investments in artificial intelligence infrastructure in recent years. In April this year, the company raised its 2026 capital expenditure guidance to $180 billion to $190 billion and announced plans to raise approximately $85 billion through equity issuance, including investments from Berkshire Hathaway (BRKa.N).
Meanwhile, investors are beginning to focus on whether these massive investments can generate sufficient returns. Large tech companies have repeatedly stated that AI computing demand has exceeded existing supply capacity, with data center and chip production capacity still constrained.
HSBC analysts recently noted that the market will closely observe whether enterprise customers are controlling AI spending by adopting lower-cost models and how Alphabet deals with the impact of continuously rising hardware prices on its investment plans.
Alphabet's stock price also reflects changing market sentiment. After the company reported strong cloud business growth at the end of April, the stock price received a boost but subsequently retreated. So far, Alphabet's stock price has fallen about 15% from its May high and is down about 9% since the end of April, underperforming other "Magnificent Seven" tech stocks over the same period.
Over the past three months, Alphabet's stock price has risen about 4%, while Amazon (AMZN.O) is largely flat, Meta Platforms (META.O) is down nearly 6%, and Microsoft (MSFT.O) is down about 5%.
However, for the full year, Alphabet's stock price is still up about 13%, making it the second-best performer within the "Magnificent Seven" group.
Analysts believe that Alphabet still possesses multiple competitive advantages, including a vast consumer distribution network, AI model capabilities, cloud infrastructure, and a self-developed chip system.
Google Cloud Becomes Growth Core, Market Awaits Earnings Validation
Wall Street expects Alphabet's second-quarter performance to continue growing.
According to data compiled by the London Stock Exchange Group (LSEG), Alphabet's revenue for the April-June quarter is expected to increase 21.3% year-over-year to $116.93 billion. Visible Alpha data shows the market expects Alphabet's Q2 revenue to be approximately $117.19 billion, up over 20% year-over-year, with earnings per share estimated between $2.90 and $2.95, higher than $2.31 in the same period last year.
After deducting traffic acquisition costs (TAC), Alphabet's revenue is expected to be around $101.5 billion.
Based on consolidated market expectations, Google Search remains the largest revenue source, with projected Q2 revenue of $632.9 billion. Google Cloud Platform (GCP) continues to be the growth engine, with market expectations for its revenue reaching approximately $224 billion to $225 billion, an increase of about 64% to 65% compared to the $136 billion reported in Q2 2025.
The growth of Google Cloud business primarily benefits from increased demand for AI services and expanded orders for custom AI chips. The company has previously entered into multi-billion dollar cooperation agreements with Meta Platforms and Anthropic.
Remaining Performance Obligations (RPO), a measure of future contracted revenue, are expected to exceed $488.1 billion, a 351% year-over-year increase. This metric indicates that future commercial demand for Google Cloud remains strong.
Additionally, The Information reported that Google is developing a new chip codenamed "Frozen v2," which may integrate some Gemini technology to improve model operational efficiency and reduce processing time.
Market Expectations Fluctuate Ahead of Earnings, Investors Focus on AI Commercialization Capability
Ahead of Alphabet's earnings release, the options market already reflects high uncertainty.
Based on recent options pricing, traders expect Alphabet's stock price could experience a maximum two-way swing of up to 5.5% by the end of this week following the earnings release. Based on Tuesday's closing price, the stock could rise to around $366, nearing its May high, or fall below $329.
The core market focus is not on single-quarter revenue performance, but on whether Alphabet can prove that AI investments are forming sustainable commercial value.
Currently, Wall Street remains generally optimistic about Alphabet. Among the 12 analysts tracked by Visible Alpha, 11 have a Buy rating, and one maintains a Neutral rating, with an average target price of about $439, implying over 25% upside from Tuesday's closing price.
However, as AI competition enters the infrastructure investment phase, Alphabet needs to prove to investors that its massive investments in data centers, chips, and model R&D can not only maintain technological competitiveness but also translate into higher profits and long-term growth.
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