Will Alphabet’s Earnings Report Justify AI Investments?

TLDR

• Alphabet is scheduled to release its Q1 2026 earnings on Wednesday after market close.
• Revenue is projected to be approximately $107 billion, marking a 19% increase year-over-year.
• Google Cloud sales are anticipated to grow by 47%, with operating income expected to rise by 120%.
• Earnings per share (EPS) are forecast to decrease to $2.63 due to a challenging year-over-year comparison.
• Options traders are anticipating a potential stock movement of 5.67% in either direction following the earnings announcement.

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(SeaPRwire) –   Alphabet is set to announce its first-quarter 2026 financial results today, April 29, after market close. The key focus will be on whether the company can validate its substantial investments in artificial intelligence.

Alphabet Inc., GOOGL

Alphabet has allocated up to $185 billion for AI capital expenditures in 2026, funding both its internal infrastructure and its Google Cloud rental services. Each quarterly report now serves as a measure of the success of this strategic bet.

The company demonstrated positive results in the previous quarter. Google Cloud sales saw a 48% year-over-year increase in Q4 2025, accompanied by a significant 154% surge in operating profit.

Analysts on Wall Street are expecting continued strong performance. According to FactSet, analysts predict a 47% rise in cloud segment revenue for Q1, with operating income projected to grow by 120%.

Overall revenue is estimated to reach around $107 billion, representing a 19% increase compared to the previous year.

EPS is expected to see a slight decline to $2.63 from the prior year. However, this decrease is largely attributed to a one-time, non-cash boost of 62 cents per share in Q1 2025 resulting from increased valuations in Alphabet’s venture capital portfolio. Excluding this item, the underlying financial picture appears more stable.

What’s Driving the Business

Advertising continues to be the primary revenue driver. Ad revenue is expected to account for approximately 71% of total Q1 sales, amounting to $76 billion, an increase of 14% year-over-year. Google Search and YouTube are the main contributors, while the third-party ad network is experiencing a decline.

Cloud represents the growth segment. CEO Sundar Pichai indicated on the Q4 earnings call that the company has been “supply constrained even as we’ve been ramping up capacity.” This is generally a favorable position for investors.

Investors will also be monitoring capital returns, including dividends and share buybacks, especially as capital expenditures increase.

Analyst Views Going In

On Monday, Bernstein analyst Mark Shmulik reaffirmed an Outperform rating with a price target of $900. He anticipates a strong quarter, with both Search and Cloud benefiting from AI-driven demand. While YouTube’s performance might be mixed, he does not expect it to be a significant detractor.

Shmulik does not foresee any revisions to the capital expenditure guidance this quarter. He is looking for more detailed updates on AI product advancements and any indications of operating expense efficiencies.

He did note a potential concern: at current valuations, the stock may be fully priced.

GOOGL has seen a 118% increase over the past year and a 12% gain year-to-date.

The consensus rating from Wall Street is a Strong Buy, based on 26 Buy ratings and 5 Hold ratings. The average price target is $387.68, suggesting approximately 12.6% potential upside from current levels.

Options traders are factoring in a potential price swing of 5.67% in either direction following the earnings release. This is notably higher than Alphabet’s average post-earnings move of 1.44% over the last four quarters, suggesting that the market views today’s report as a significant test.

The results are scheduled to be released after market close today, April 29.