Investors focused on capital spending rather than earnings
Alphabet (NASDAQ:GOOG) is set to report second-quarter 2026 earnings after Wednesday’s market close, with investors expected to focus less on headline financial results and more on the company’s artificial intelligence investment plans.
According to Wolfe Research, capital expenditure will be the key metric to watch during this earnings cycle.
“Revenue and earnings are likely to not matter as much as the amount of capital spending completed in the quarter and the guide for the rest of the year,” Wolfe Research analysts wrote on Tuesday.
Raymond James analysts believe Alphabet could signal more than $300 billion in capital expenditure for 2027, significantly above Wall Street’s current forecast of $261 billion.
Consensus estimates call for second-quarter earnings per share of between $2.87 and $2.90 on revenue of approximately $116.8 billion to $116.93 billion, representing annual growth of roughly 21%. Google Cloud revenue is expected to increase between 64% and 65% year over year after climbing 63% to $20 billion during the first quarter. Citi is even more optimistic, forecasting Cloud Platform growth of 68.5%.
AI investment remains under the spotlight
Alphabet sharply increased its 2026 capital expenditure guidance to between $180 billion and $190 billion in April, compared with just $32.3 billion in 2023.
During the first quarter, capital spending more than doubled year over year to $35.7 billion, reaching nearly 1.8 times Google Cloud’s quarterly revenue. The heavy investment contributed to a 46.3% decline in free cash flow, which fell to $10.1 billion.
Investors will be looking for any changes to the company’s spending outlook and whether second-quarter investment trends point toward the upper or lower end of management’s guidance.
To support its AI expansion, Alphabet has strengthened its balance sheet by issuing $20 billion in debt since the end of the first quarter and announcing an $84.75 billion gross equity raise, including an investment from Berkshire Hathaway. According to io-fund.com, these transactions would leave the company with a pro forma cash position of approximately $190 billion.
Cloud backlog and Gemini progress remain key themes
Much of the long-term investment case continues to centre on Alphabet’s expanding cloud business. The company ended the first quarter with a Cloud order backlog of $462 billion, almost double the previous quarter’s level.
Chief Financial Officer Anat Ashkenazi previously said the company expects to convert more than half of that backlog into revenue within 24 months. Investors will be looking for an update on whether that timetable remains achievable.
Alphabet also maintains a cost advantage through its custom Tensor Processing Units (TPUs), which reduce reliance on Nvidia’s graphics processors for AI inference. During the first-quarter earnings call, Chief Executive Officer Sundar Pichai said Gemini was processing 16 billion tokens per minute through its direct API by late April, highlighting the scale of the platform.
Delays and competition raise execution risks
Despite strong demand for AI infrastructure, investors remain concerned about execution.
Reuters reported this week that Alphabet has postponed the launch of Gemini 3.5 Pro, originally expected in June, increasing questions about the company’s pace of AI product development and monetisation.
Raymond James analysts said investors are likely to place “a larger focus on Gemini 3.5 Pro cadence, as lack of a June launch has shifted perception from leading edge to trailing edge.”
“We view this as a byproduct of the pace of change amidst the ~20+ annual X.0/X.5 releases from AI Labs, Opensource and Neo Labs.”
Reuters also reported that Alphabet has lost several high-profile AI researchers, including Gemini co-lead Noam Shazeer, who joined OpenAI, and Google DeepMind Nobel Prize winner John Jumper, who departed for a competing company.
Results could shape sentiment across the AI sector
Alphabet shares have declined about 9% since reporting first-quarter results in late April, although the stock remains approximately 13% higher for the year, making it the second-best performer among the Magnificent Seven in 2026.
The earnings report could have implications well beyond Alphabet. The four largest hyperscale technology companies invested a combined $129.8 billion in capital expenditure during the first quarter, an 81% increase from a year earlier. UBS expects total spending by the group to rise 76% this year to $673 billion.
Any disappointment in Alphabet’s capital spending plans or a more cautious outlook on AI infrastructure returns could influence expectations for semiconductor manufacturers, memory chip producers and the wider technology sector.
Investors will also turn their attention to Intel’s earnings on July 23, followed by results from Microsoft, Amazon and Meta during the week of July 28, making Alphabet’s outlook a key reference point for the remainder of the earnings season.