Alphabet Earnings Preview: AI Competition Heats Up as Focus Shifts to Model Power

 

Alphabet will report Q2 earnings after Wednesday's close. The release is a key gauge for the market's AI trade.

 

Investors are weighing heavy CapEx on data centers and chips against returns. As a result, market sentiment on AI spending is growing more cautious.

 

Wall Street expects Alphabet’s revenue to rise 21.1% YoY to $116.8 billion. That matches Q1's 21.8% expansion rate.

 

Remaining performance obligations (RPO) are projected to cross $488.1 billion. That represents a 351% jump from Q2 last year.

 

Google Cloud remains the main growth driver, expected to jump 63%. Cloud adoption has soared as customers roll out Google's AI tools.

 

Alphabet holds a key edge with custom chips, cloud infrastructure, and joint hardware-model design. However, it still faces supply capacity limits.

The AI Model Race

The report is both an AI sector test and a review of Google's industry lead. AI developers face rising pressure to launch stronger models to keep market share.

 

On Tuesday, Google launched three new Gemini models focused on cost efficiency.

 

Sources say the key Gemini 3.5 Pro model faces a multi-month delay. The model was missing from Tuesday's event, causing internal frustration.

 

Alphabet denied the claim, stating it continues to deliver products quickly while maintaining cost-efficiency. It added that Gemini 3.5 Pro is currently in partner testing.

 

The friction highlights how tense the market battle has become.

 

Demand for Moonshot AI's Kimi K3 model forced access limits due to capacity constraints. Meanwhile, Alibaba teased its Qwen 3.8 Max, claiming performance second only to Anthropic's Fable 5.

 

HSBC analysts noted they are watching if clients shift to cheaper models to curb AI spend. They are also tracking how rising chip prices impact capital budgets.

 

Finally, we believe that while rising CapEx and competitive pressures are driving near-term volatility, Alphabet's massive $488B+ backlog and full-stack AI architecture give it a structural advantage.

 

As long as Google Cloud maintains its 60%+ growth trajectory, any pullback triggered by temporary product delays represents an attractive entry point for long-term investors.