Alphabet is scheduled to release its third-quarter financial results after the market closes on Wednesday, with investors weighing whether accelerating cloud revenue can justify the company's expanding artificial intelligence infrastructure investments.
According to LSEG data, analysts anticipate earnings per share of $3.02 on revenue of $128.2 billion. That would represent a 25% year-over-year increase, marking Alphabet's fastest quarterly growth since 2021.
The report arrives amid growing investor caution over the escalating costs of AI expansion. Alphabet shares were up 0.87% in Wednesday trading, but the stock has declined in five of the past six sessions and is down roughly 7% for October.
Google Cloud Growth Remains a Key Focus
Analysts project Google Cloud revenue to surge 90% to $28.7 billion in the third quarter, as Alphabet expands its AI offerings and competes with Amazon Web Services and Microsoft Azure. The company is integrating its Gemini models into enterprise products while boosting sales of its custom tensor processing units (TPUs), which rival Nvidia's graphics processing units.
Cloud growth has supported Alphabet's investment strategy, but analysts are seeking more detail on the division's profitability and the returns generated by its infrastructure. Mizuho analyst Lloyd Walmsley noted that additional information on 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 such as OpenAI and Anthropic, as well as the emergence of AI agents that can handle tasks like shopping and travel. Citizens analysts said Alphabet remains well positioned across AI but cautioned that execution risks persist, highlighting the need for the company to adapt to rising search competition.
AI Capital Expenditure and Cash Flow Under Scrutiny
In July, Alphabet raised its full-year capital expenditure forecast to between $195 billion and $205 billion, up from the prior range of $180 billion to $190 billion, reflecting faster data-center and server deliveries to meet demand. FactSet estimates show 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 by 2027. FactSet analysts project infrastructure spending of more than $310 billion next year.
Evercore ISI analyst Mark Mahaney said there is a reasonable possibility that Alphabet will 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 has 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.
This article is for informational purposes only and does not constitute financial advice.
