Alphabet Faces Scrutiny Over Gemini Delay, AI Spending Ahead of Earnings

Alphabet is facing heightened investor scrutiny ahead of its second-quarter earnings report on Wednesday, as a delay to a key artificial intelligence model and concerns over massive spending commitments weigh on market sentiment.

AI Strategy Under Scrutiny

The company has delayed the launch of its next flagship model, Gemini 3.5 Pro, which was originally slated for a June release, according to a Reuters report. This model is considered crucial for competing with rivals in the lucrative markets for AI-powered coding tools and advanced "agentic AI" tasks. The setback has been compounded by the departure of high-profile employees, including Gemini co-lead Noam Shazeer.

These developments come amid a competitive landscape where Chinese open-source models are increasingly challenging U.S. technology and clients are growing more concerned about the steep costs of AI implementation. "While Google is missing the boat on AI coding and that’s a very real growing concern ... Google’s strategy is all about the ecosystem," said Dave Wagner, portfolio manager at Aptus Capital Advisors, quoted by Reuters.

Spending and Stock Performance

Investor worries also center on the company's significant financial commitments to AI infrastructure. In April, Alphabet increased its 2026 capital expenditure guidance to between $180 billion and $190 billion. This massive outlay has raised questions about the eventual return on investment and fanned broader fears that major tech firms could be over-building capacity.

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Since its last earnings report in late April, Alphabet's shares have fallen about 9%, lagging other "Magnificent Seven" stocks during the same period. However, the stock remains up nearly 13% year-to-date, making it the second-best performer in that group for 2026 overall.

Q2 Earnings Preview

Despite the concerns, analysts expect Alphabet to report another strong quarter, driven largely by its cloud business. According to data compiled by LSEG, Wall Street anticipates:

• Total Q2 revenue to rise 21.3% to $116.93 billion.
• Cloud sales to grow by approximately 64%, continuing the strong momentum from the first quarter.
• Advertising revenue to expand at a more moderate 13.7%.

The cloud division's performance has been bolstered by major deals for Google's custom AI chips, including multi-billion-dollar agreements with partners like Meta Platforms and Anthropic.