Alphabet is set to report its third-quarter results after the market closes on Wednesday, with investors assessing whether accelerating cloud revenue can justify the company’s growing investment in artificial intelligence infrastructure.
Analysts surveyed by LSEG expect earnings per share of $3.02 on revenue of $128.2 billion.
Revenue is projected to rise 25% year over year, which would mark Alphabet’s fastest growth rate for a quarter since 2021.
The results come as investors become more cautious about the cost of AI expansion.
Alphabet shares GOOGL were up 0.87% on Wednesday.
The company’s shares have fallen in five of the past six sessions through Tuesday and are down about 7% in October.
Google Cloud growth remains a key focus
Analysts expect Google Cloud revenue to increase 90% to $28.7 billion in the third quarter as Alphabet expands its AI offerings and competes with Amazon Web Services and Microsoft Azure.
Google is integrating its Gemini models and services into enterprise products while increasing sales of its custom tensor processing units (TPUs), which compete with Nvidia’s graphics processing units.
Cloud growth has helped support Alphabet’s investment strategy, but analysts are seeking more detail about the division’s profitability and the returns generated by its infrastructure.
Mizuho analyst Lloyd Walmsley said additional information about customer concentration, revenue per gigawatt of deployed computing power, and operating profitability would help investors value the cloud business.
Alphabet’s core search business also faces increasing competition from AI companies, including OpenAI and Anthropic, as well as the emergence of AI agents that can handle tasks such as shopping and travel.
Citizens analysts said Alphabet remained well positioned across AI but cautioned that execution risks persisted.
They also highlighted increasing competition in search and the need for the company to adapt.
AI capital expenditure and cash flow under scrutiny
Alphabet raised its full-year capital expenditure forecast in July to between $195 billion and $205 billion, up from its previous guidance of $180 billion to $190 billion.
The increase reflected faster data-centre and server deliveries to meet demand.
FactSet estimates show that third-quarter capital expenditure will rise 130% year over year to $55.2 billion.
Analysts also expect negative free cash flow of $2.27 billion for the quarter, with the shortfall projected to widen over the following four quarters.
Annual capital expenditure is expected to exceed $200 billion this year and surpass $300 billion in 2027.
FactSet analysts project infrastructure spending of more than $310 billion next year.
Evercore ISI analyst Mark Mahaney said there was a reasonable possibility that Alphabet would provide more specific guidance on its 2027 spending plans during the earnings call.
Investors will assess whether the additional investment can sustain revenue growth without putting further pressure on cash generation.
Anthropic investment adds another dimension
Alphabet’s relationship with Anthropic is another area of investor interest.
According to Anthropic’s S-1 filing, Alphabet has supported the AI company through convertible-debt agreements that have since converted into preferred shares.
Alphabet invested $10 billion in Anthropic’s Series H funding round in May and committed up to another $20 billion in financing that Anthropic can draw through 2030.
Under the agreement, Alphabet can purchase up to $10 billion worth of shares directly in Anthropic’s IPO.
Alphabet’s ownership of Anthropic is capped at 14.99% of the AI company’s outstanding shares.
Meanwhile, Mizuho’s Walmsley said investor caution around Alphabet had increased partly because of competition from Meta’s Muse AI agent.
He expects strong cloud growth to more than offset potential weaknesses elsewhere in the third quarter.
Alphabet’s results and updated spending outlook will therefore be central to investors’ assessment of whether its AI investments can deliver sustainable growth and returns.
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