Alphabet's Gemini Delay, Spending Worries Loom Over Earnings

Alphabet, Google's parent organisation, faces increased scrutiny from investors. A delay in the launch of a key artificial intelligence model, Gemini 3.5 Pro, has amplified existing concerns. These worries surround the financial returns from the company's extensive data-centre expenditures, months after it reported a substantial increase in cloud sales.

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The technology giant is scheduled to report its second-quarter financial results. It has previously delayed the introduction of its next flagship model, Gemini 3.5 Pro. This particular model was developed to compete in the market for AI coding tools and agentic AI tasks. Competitors in this sector generate substantial revenue. The delay means Alphabet is working to catch up with rivals in this lucrative area.

And this development has generated further unease among market observers. Chinese open-source models are increasingly challenging established U.S. laboratories for customer acquisition. Growing apprehension regarding the substantial costs associated with AI development has also contributed to broader concerns. These worries extend to whether Big Tech firms might be building excessive capacity for future needs.

Dave Wagner, a portfolio manager at Aptus Capital Advisors, commented on the situation. He noted Google's absence in the AI coding market represented a significant and growing concern. However, he stated that Google's overarching strategy centered on its extensive ecosystem. This implies a reliance on its broader network of products and services.

Alphabet previously increased its capital expenditure guidance for the year to between USD 180 billion and USD 190 billion. This adjustment was announced earlier in the year. The organisation has also outlined plans to raise approximately USD 85 billion through equity offerings. These funds are intended to finance the company's artificial intelligence ambitions. An investment from Berkshire Hathaway formed part of these offerings.

But Alphabet shares have seen a decline of approximately 9 per cent since earlier in the year. This performance lags behind other companies within the "Magnificent Seven" group of stocks during the same period. The company has also experienced the departure of several high-profile employees. These included Gemini co-lead Noam Shazeer and Nobel laureate John Jumper, a key Google DeepMind executive, who moved to rival organisations. Despite these setbacks, the company's shares remain almost 13 per cent higher for the year overall.

Analysts have indicated that Google's competitive advantage in the artificial intelligence sector stems from its ownership of a substantial consumer distribution network. This network supplements its existing AI models, cloud infrastructure, and bespoke silicon. The combination of these assets is considered a significant factor in the company's market position.

Overall, Alphabet shares currently stand as the second-best performer among the "Magnificent Seven" group for the year. This places it ahead of most of its significant technology counterparts. Analysts anticipate that the company's revenue growth for the second quarter will only slightly ease from the previous three months of the year. This expected performance is primarily attributed to the strength of its cloud business operations.

So, Alphabet is forecast to report a 21.3 per cent increase in revenue for the April-June period. This would amount to USD 116.93 billion, according to data compiled by LSEG. Cloud sales are projected to maintain a similar growth rate of 64 per cent. Conversely, advertising revenue is predicted to expand at a slower pace, approximately 13.7 per cent.

The cloud business has seen benefits from an increase in deals involving Google's custom artificial intelligence chip business. These agreements include multi-billion USD commitments with Meta Platforms and Anthropic. So these partnerships are contributing to the positive performance of Google's cloud division.

• Alphabet faces investor scrutiny due to the delayed launch of its Gemini 3.5 Pro AI model.

• Concerns persist regarding the returns from Alphabet's significant data-centre capital expenditures.

• The company increased its capital expenditure guidance for the year to between USD 180 billion and USD 190 billion, also planning to raise USD 85 billion in equity.

• Alphabet's share performance has lagged behind some competitors since earlier in the year, despite an overall annual gain.

• Analysts anticipate continued revenue growth driven by the cloud business, with projected revenue of USD 116.93 billion for the April-June period.

Source: Reuters