Google is expected to provide evidence that its AI spending is "reasonable." Should you buy shares before the earnings report?

Alphabet will release its second-quarter 2026 earnings report on July 22 after the close of the main trading session in the U.S. Amid rapidly rising AI spending, investors expect Google’s parent company to report strong growth in its Google Cloud business for the reporting period, according to Bloomberg. Another key factor market participants are watching is the company’s capital expenditures. Alphabet has previously warned that capital expenditures will only increase in the coming years.

Analysts surveyed by Bloomberg expect Alphabet’s revenue and net income to grow by approximately 25% in the second quarter. Meanwhile, Google Cloud’s quarterly revenue is expected to jump by nearly 65% compared with the same period last year, reaching $22.4 billion (in the first quarter, Alphabet’s cloud division posted 63% growth).

Bloomberg notes that Alphabet’s results will be evaluated in light of the company’s capital expenditure plans. Last quarter, Alphabet announced that it plans to allocate up to $190 billion to capital expenditures this year and that these expenditures will be “significantly” higher in 2027. Analysts expect Alphabet’s capital expenditures to reach $262 billion in 2027, nearly three times the 2025 level. Moreover, Alphabet’s recent capital raise of nearly $85 billion has led Wall Street to expect even more impressive figures, Bloomberg notes.

This forecast of the company’s financial performance is well-founded, but in reality, Alphabet’s results may turn out to be even stronger, “given industry experts’ comments about the continued strong demand for AI infrastructure,” noted Evercore ISI analyst Mark Mahaney.

“The levels of investment are enormous, but right now investors still believe that [the company’s] AI spending is justified as long as the numbers indicate a future return on investment,” — added David Miller, Chief Investment Officer at Catalyst Funds. “If Alphabet manages to beat its first-quarter results in its upcoming earnings report (when sales from its cloud division accelerated year-over-year growth to 63% and brought the company $20 billion in revenue), it will signal that [AI] spending remains reasonably prudent,” he emphasized.

Investors are increasingly concerned about exactly how much tech giants are spending on developing AI infrastructure. The key beneficiaries of these investments are chipmakers—the stock prices of some of them have more than doubled since the start of the year, while the stock prices of most companies in the “Magnificent Seven” (including Alphabet), which are providing these financial injections, have remained virtually unchanged, Bloomberg explains.

Among the big tech companies actively investing in AI, Alphabet is generally considered one of the best-positioned firms. In addition to Google Cloud, its search business is also performing well. Furthermore, the company has introduced a number of AI tools that have been well-received by the market, including, for example, the Gemini AI model and smart AI Overviews directly in search results, and Wall Street remains optimistic about its semiconductor division, notes Bloomberg.

“Alphabet has shown that it can generate a good return on its investments, but the question is whether it can continue to maintain this high level of profitability,” notes Jonathan Kofsky, a portfolio manager at Janus Henderson Investors. “If the company shows accelerated growth in the cloud segment and maintains its strong position in search, this will give investors greater confidence regarding its expenses and overall stock returns.”

Alphabet’s stock has risen 11% since the start of 2026, following a 65% surge in 2025. However, it has already fallen 14% from its peak of $408.61 on May 18. However, among the “Magnificent Seven” stocks this year, only Apple— which has refrained from joining the AI spending race—and chipmaker leader Nvidia have outperformed Alphabet. The company’s P/E ratio (price-to-earnings ratio) stands at 23, according to Bloomberg. By comparison, the Nasdaq 100 technology index currently has the same P/E ratio, while the S&P 500’s stands at 20. “[For Alphabet’s stock] the multiple looks quite reasonable in terms of expected profitability and observed growth,” Miller noted. “I don’t think many investors will have a problem buying at this valuation given such highly profitable revenue growth. The upside here seems quite obvious,” he added.

On Monday, the company’s stock gained momentum amid reports that Alphabet is developing a server chip designed to optimize its Gemini AI model. The model is considered one of the industry leaders, although, as Bloomberg reported, the release of its latest version has been delayed—the company is working to improve the capabilities of the updated neural network, particularly in the area of code generation.

During trading on July 22, Alphabet shares rose by a symbolic 0.1%.

This article was AI-translated and verified by a human editor