Alphabet AI delay overshadows robust cloud growth outlook
Alphabet's delayed Gemini 3.5 Pro launch and massive capital spending threaten to overshadow an expected 21% revenue jump when it reports second-quarter earnings on Wednesday.
Alphabet will report second-quarter earnings on Wednesday with investors increasingly focused on a high-profile delay to its next artificial intelligence model. The company has pushed back the launch of Gemini 3.5 Pro from June, missing a crucial window in the lucrative market for AI coding tools and agentic tasks.
The setback has amplified concerns that Alphabet is losing ground in the generative AI race just as Chinese open-source models aggressively challenge top U.S. laboratories. Fears that Big Tech is over-building data center capacity are adding pressure on the stock, which has fallen 9% since late April despite a previous blockbuster cloud quarter.
Those operational anxieties are compounded by the sheer financial scale of Alphabet's AI infrastructure buildout. The company guided 2026 capital expenditure to between $180 billion and $190 billion in April and announced plans to raise roughly $85 billion through equity offerings, including a notable investment from Berkshire Hathaway.
The tech giant has also suffered high-profile departures, losing Gemini co-lead Noam Shazeer and Nobel laureate John Jumper of Google DeepMind to competitors. These talent and execution risks have caused the shares to lag other "Magnificent Seven" peers in recent months.
However, the underlying financial metrics remain strong. Analysts polled by LSEG expect second-quarter revenue to rise 21.3% to $116.93 billion. The cloud division is forecast to sustain its 64% growth rate, while traditional advertising revenue is projected to expand at a slower 13.7%.
Analysts attribute this cloud resilience to Alphabet's integrated ecosystem, spanning consumer distribution, proprietary models, and custom silicon. The unit has recently secured multi-billion-dollar agreements for its custom AI chips with Meta Platforms and Anthropic.
Alphabet shares are still up nearly 13% for the year, making it the second-best performer in the Magnificent Seven. The core test for executives this week will be convincing investors that massive infrastructure spending can effectively translate into dominant market share before the AI market consolidates.
