Alphabet is set to report second-quarter 2026 earnings after U.S. markets close on July 22, with Wall Street focused less on whether the company is spending heavily on artificial intelligence and more on whether that spending is producing enough revenue growth to justify the rising bill.
The central issue is Google Cloud. Deutsche Bank said in a July 20 note that Alphabet’s outlook may depend on whether cloud revenue can move well above current market expectations, as demand for AI computing capacity accelerates. The bank expects Google Cloud revenue to grow 70% in the second quarter and to reach a 75% growth pace later in 2026, supported by large orders for AI infrastructure.
That forecast has placed Alphabet’s capital spending plans at the center of the earnings debate. The company is expanding data center capacity, buying advanced chips, securing power access and building the infrastructure needed to train and operate large AI models. Those efforts could weigh on near-term profit margins, but stronger-than-expected Google Cloud growth could offset part of the pressure.
Backlog orders for Google Cloud reached $462 billion in the first quarter, according to Deutsche Bank, representing a 400% increase from a year earlier. That backlog has become one of the most closely watched indicators for traders assessing whether Alphabet’s AI strategy can convert rising demand into durable revenue.
The bank projects Google Cloud revenue of $190 billion to $195 billion by 2027, about $50 billion above the current consensus estimate. If Alphabet can achieve a 30% operating margin on that additional revenue, Deutsche Bank estimates it could produce roughly $15 billion in extra GAAP operating profit, equal to about $1 per share in incremental earnings.
The forecast underscores why Alphabet’s second-quarter report may carry significance beyond the latest advertising trends. The company is being judged on whether it can turn AI infrastructure spending into profitable growth before higher depreciation, power costs and chip purchases begin to weigh more heavily on earnings.
Cloud growth takes center stage
Google Cloud has moved from a secondary business line to a major driver of Alphabet’s valuation story. For years, the company’s search advertising business dominated market attention. That is changing as enterprise customers increase spending on AI tools, data processing, cloud storage and model deployment.
The scale of demand matters because AI workloads require far more computing power than traditional cloud services. Companies training and running large language models need access to graphics processors, networking systems, cooling equipment and reliable electricity. These requirements have turned cloud platforms into critical infrastructure providers for the AI economy.
Deutsche Bank’s view is that Alphabet’s heavy capital spending is not necessarily a problem if the company can grow cloud revenue fast enough. In that framework, the question is not simply how much Alphabet spends, but whether it can earn an acceptable return on that spending.
The bank expects Alphabet’s capital expenditures to continue rising through 2027 and 2028. Its latest forecast calls for spending to reach $325 billion in 2027, up from a previous estimate of $250 billion. By 2028, spending could rise further to roughly $365 billion to $370 billion.
Those figures reflect the cost of meeting expected AI demand. Deutsche Bank estimates that Alphabet may need about 11.5 gigawatts of computing capacity, followed by another 10 gigawatts the next year. Each gigawatt of data center buildout is estimated to cost between $30 billion and $35 billion.
That level of spending would place Alphabet among the largest private-sector buyers of computing infrastructure and energy capacity in the world. It would also intensify scrutiny of how efficiently the company can deploy capital, manage power supply and keep operating margins from narrowing too sharply.
Spending pressure remains manageable, bank says
Despite the steep rise in projected capital expenditures, Deutsche Bank said Alphabet’s financial position remains strong enough to absorb the costs. The bank pointed to Alphabet’s liquidity, operating cash flow and access to financing as factors that could help the company fund its AI buildout without undermining its broader financial profile.
Alphabet held $127 billion in cash and marketable securities at the end of the first quarter, along with $107 billion in unlisted securities. Deutsche Bank also expects cumulative operating cash flow through 2027 to reach about $420 billion.
The company also completed approximately $65 billion to $70 billion in financing during the quarter, according to the bank. That included $10 billion from Berkshire Hathaway, two share offerings totaling $36 billion, up to $40 billion in at-the-market issuances and multi-currency debt placements.
The financing activity suggests Alphabet is preparing for a long period of infrastructure expansion rather than a short spending cycle. The company’s ability to fund that expansion while preserving flexibility will likely be an important topic during its earnings call.
Traders will be listening for details on whether Alphabet plans to keep capital expenditures at elevated levels, whether management expects returns from AI spending to improve over time and how much of the spending is already tied to committed customer demand.
Search advertising concerns ease
While cloud growth and AI spending are expected to dominate the earnings discussion, Alphabet’s core advertising business remains critical. Search advertising continues to generate a large share of the company’s profit and cash flow, making any slowdown in search demand a major risk to the broader AI spending plan.
Recent traffic data have eased some concerns. Visits and page views to Google sites rose from the previous quarter, according to Deutsche Bank. The bank maintained its forecast for 16.5% year-over-year growth in the second quarter and 14% growth in the third quarter.
Those numbers suggest that Google’s search business remains resilient even as AI tools change how consumers find information online. The growth also indicates that fears of rapid search disruption may have been overstated, at least for now.
Advertisers are also beginning to shift portions of their budgets toward AI-integrated products, including AI Overviews. Early channel checks cited in the note point to stable advertising behavior, with some brands testing new placements around AI-powered search and online tools.
That transition is important for Alphabet. If AI Overviews reduce traditional search clicks without producing enough new advertising revenue, margins could come under pressure. But if the company can integrate ads effectively into AI-driven products, search could remain a powerful profit engine while also supporting new formats.
The second-quarter report may offer more evidence on whether AI is changing search economics. Traders will be watching paid click trends, cost-per-click trends, traffic acquisition costs and management commentary on ad placements inside AI search features.
Gemini remains in focus
Alphabet’s Gemini AI platform is another key part of the company’s growth narrative. The postponed release of the Gemini 3.5 Pro model has raised questions about execution timelines, but Deutsche Bank said the delay has not derailed user growth trends.
Website and session data suggest Gemini usage continues to expand, though growth has slowed from earlier levels. Mobile application downloads have eased compared with 2025, but total sessions continue to rise.
That distinction matters because downloads can fluctuate after product launches or major marketing campaigns, while session growth may provide a better view of continuing engagement. A rising number of sessions indicates that existing users are returning to the product more often, even if new download growth has cooled.
Alphabet faces intense competition in consumer and enterprise AI. ChatGPT usage has stabilized over the past year, according to the note. Meta AI expanded sharply after the launch of Muse Spark, while Grok activity declined. Deutsche Bank said timeline adjustments for Gemini appear temporary and have not materially changed Alphabet’s competitive position in AI.
The earnings call could provide more clarity on Gemini’s role across the company’s products. Alphabet has been embedding AI features into search, productivity tools, developer platforms, advertising products and cloud services. The ability to combine Gemini with Google’s existing distribution could be a major advantage if user engagement continues to grow.
Data center demand creates a wider market impact
Alphabet’s AI buildout is part of a much broader race among large technology companies to secure computing capacity. The surge in spending on hardware, power systems and cooling equipment has created fierce competition for energy infrastructure.
AI data centers require large amounts of electricity and water-intensive or power-intensive cooling systems. As a result, technology companies are bidding for access to the same power stations, grid connections and industrial sites that have also been used by cryptocurrency mining operations.
Data centers worldwide consume a large and growing amount of electricity. Machine learning facilities now account for a significant portion of the estimated 790 terawatt-hours used globally by data centers. That demand is reshaping power markets, especially in regions where grid capacity is limited or where large sites with reliable electricity are scarce.
Facility operators with long-term power contracts are benefiting from the shift. In some cases, converting sites from token mining to AI computing can produce much higher revenue. Power used for machine learning workloads can generate substantially more income per kilowatt-hour than power used to generate digital tokens, according to industry estimates cited in the source material.
That difference is changing the economics of data center ownership. Operators with land, grid connections and secured power agreements may have a stronger position than companies that only provide computing hardware. The bottleneck is no longer just chips; it is also electricity, cooling, land and permitting.
Technology shares and digital assets remain linked
Alphabet’s earnings could also matter for digital asset markets because of the close relationship between large technology shares and major tokens. Current tracking cited in the source material shows a 0.68 positive correlation between major software stocks and top digital tokens.
That link means a sharp decline in technology shares can trigger pressure across digital asset markets, especially when traders reduce exposure to higher-risk assets at the same time. If Alphabet or other large technology companies show that AI infrastructure costs are rising faster than revenue, concerns about margins could spread across broader risk markets.
Alphabet’s free cash flow has already come under pressure from server spending, with the source material noting a recent 47% decline. If additional hardware costs continue to reduce free cash flow, traders could become more cautious toward companies with aggressive AI spending programs. That caution could then spill into digital tokens, particularly those that trade in line with broader technology sentiment.
The risk is not limited to Alphabet. Large AI infrastructure plans across the technology sector are forcing markets to reassess how much spending is needed, how quickly revenue can grow and whether margins can remain strong. If traders conclude that AI spending is becoming too expensive, higher-growth technology names and speculative digital assets may face renewed selling pressure.
At the same time, companies and facility operators with direct control over power access may benefit from the transition. Industry figures have argued that ownership of land and guaranteed power agreements has become one of the clearest competitive advantages in the current cycle. As demand for AI computing rises, energy access may become as strategically important as software talent or chip supply.
Earnings call may set the tone
Alphabet’s second-quarter results will be judged on several fronts. Traders will look for evidence that Google Cloud can maintain rapid growth, that AI demand is translating into firm revenue commitments and that search advertising remains healthy despite changes in user behavior.
They will also examine capital expenditure guidance closely. Management’s comments on data center spending, chip supply, power availability and depreciation could influence how the market values Alphabet’s AI strategy.
A strong report could reinforce the view that Alphabet is one of the best-positioned companies in the AI infrastructure race, supported by search cash flow, cloud demand and a large balance sheet. A weaker report, especially one showing margin pressure or slower cloud growth, could revive concerns that AI spending is rising faster than near-term returns.
For now, Deutsche Bank’s position is that the company’s spending remains manageable if Google Cloud revenue outpaces expectations. That makes the cloud segment the central number in Alphabet’s upcoming report.
The broader market question is whether Alphabet can prove that AI infrastructure is not just a cost burden but a profit engine. The answer may help shape sentiment toward large technology stocks, digital assets and the rapidly tightening market for global computing power.
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