Alphabet Q2 Earnings Preview: Cloud and Capex Take Center Stage

The essentials at a glance:

• -Alphabet reports tomorrow, July 22, after market close, with the earnings call set for 4:30 p.m. Eastern Time. Consensus points to EPS of US$3.2 and revenue near US$101 billion (+25% year-over-year), with Google Cloud advancing roughly 64% to US$22.4 billion.
• -Capex is the key variable: Alphabet already guided 2026 to US$180-190 billion, and the market expects sharper clarity on 2027, where some projections already exceed US$300 billion.
• -Free cash flow remains under pressure: it fell to US$10.1 billion in the first quarter from US$18.9 billion a year earlier, with consensus placing it at just US$2.3 billion this quarter.

Google Cloud and Search Keep Driving Alphabet's Growth

Analyst consensus points to earnings per share of US$3.2, with revenue near US$101 billion, implying year-over-year growth of around 25%. Estimates have been revised modestly higher over the past thirty days, a sign that analysts have gained confidence in the sustainability of the advertising business and in the acceleration of the cloud unit ahead of the print.

Chart: Consensus estimate table for the second quarter of 2026 (EPS, revenue, net income, operating profit, and EBITDA), showing the four-week change in estimates and the implied year-over-year growth for each metric.

The center of attention this quarter remains Google Cloud, which the consensus projects at roughly US$22.4 billion, a year-over-year advance of around 64%. The cloud services contracted backlog nearly doubled in the first quarter to US$462 billion, and much of the conversation on the earnings call will center on the pace at which that backlog converts into recognized revenue, as well as the incremental contribution from TPU chip sales to external customers such as Anthropic.

At the same time, the Search business should show growth of between 16% and 17% year-over-year, underpinned by rising query volumes thanks to AI Overviews and AI Mode, with Google's search traffic still at record highs despite intensifying competition from ChatGPT, Meta AI and Perplexity — for now contradicting fears of a structural loss of share to generative AI.

How Much 2027 Capex Will Alphabet Confirm?

The other major axis of the report will be capex. Alphabet raised its 2026 capital expenditure guidance to a range of US$180 to 190 billion in its last earnings release, and indicated that 2027 would show a further significant increase without providing a specific figure. As a result, several analysts have raised their 2027 capex projections by 21% to US$308 billion, while others anticipate that across the hyperscaler ecosystem that figure could approach a combined US$1.4 trillion by 2028.

This pace of investment, partly financed through a roughly US$85 billion capital raise announced in June, will continue to pressure free cash flow, which fell to US$10.1 billion in the first quarter from US$18.9 billion a year earlier, and which consensus places at just US$2.3 billion for the second quarter.

The market will want to hear whether the company reaffirms or even raises its 2026 capex expectations, and whether it offers more precise quantification for 2027, which could be the main valuation catalyst for the rest of the sector.

Margins and Compute Constraints Test the AI Narrative

Another point of focus will be margins, where the operating margin jumped to 36% in the first quarter thanks to cost efficiencies from Gemini. Consensus expects some normalization toward 34.5-35.4% in the second quarter, partly due to the one-to-two percentage point transitory drag that the Wiz acquisition imposes on Cloud margin for the remainder of the year, and partly due to the greater weight of lower-margin TPU hardware sales.

Chart: Quarterly evolution of Alphabet's operating margin, historical series from the first quarter of 2022 through the first quarter of 2026, showing an upward trend reaching 36% in the most recent quarter.

On the competitive and product front, it is worth noting that the launch of Gemini 3.5 Pro has been delayed until July, raising some concern about the pace of innovation relative to competitors. Additionally, Alphabet currently faces compute capacity constraints that could limit both revenue growth and the pace of product launches in the near term, a risk considered smaller at Meta and Amazon.

2027 Capex Will Define the Market's Next Move

The market approaches tomorrow's release with demanding but achievable expectations: sustained acceleration in Google Cloud driven by enterprise AI demand, a resilient Search business despite generative AI disruption, and maximum attention on the magnitude and communication of 2027 capex. That variable will determine whether the narrative of AI infrastructure investment monetization continues to gain credibility among investors, or whether it instead reignites concerns about the free cash flow compression already affecting the entire U.S. hyperscaler sector.