The AI market welcomes Google (GOOGL.US) financial reporting test! Cloud business growth rate and capital expenditure guidance are the focus

The Zhitong Finance App learned that with the sharp rise in the scale of investment in the artificial intelligence (AI) sector, investors are expecting the upcoming financial report from Google (GOOGL.US) to show strong growth in its cloud computing business, thus proving that the company's large-scale investment in the AI field is generating clear returns. As one of the “supercloud service providers” with the largest investment in AI infrastructure in the world, Google's performance and capital expenditure guidelines will also be viewed as a key weather vane for observing the direction of global AI transactions.

Currently, the market generally expects Google's Q2 revenue to be US$116.98 billion, up 21% year on year; earnings per share will be 2.91 US dollars, up 26% year on year. In this major financial report, the key indicator that received the most attention was probably the growth of its cloud business. As the growth rate of the business continues to accelerate in recent years, it will be critical to prove that this trend continues, especially in the context of Google already hinting that this financial report will include information on plans to further increase spending. The market expects sales of Google Cloud's business to increase nearly 65% year over year to US$22.4 billion in the second quarter, while the sales growth rate of this business in the first quarter was 63% year over year.

Cloud business revenue is increasingly important to Google

Evercore ISI analyst Mark Mahani said in a July 19 report that the forecast is “very reasonable, and there is clear room for upside because industry feedback shows that demand for AI infrastructure is still extremely strong.”

While the cloud business is expected to continue to perform strongly, the market will undoubtedly look at this financial report in conjunction with Google's capital expenditure plan. In its first-quarter earnings report, Google said that the company expects capital expenditure to reach a maximum of 190 billion US dollars this year, and that capital investment in 2027 will be “significantly” higher than this year.

Google recently completed an equity financing of 85 billion US dollars, and the scale of the financing was further expanded soon after it was announced in early June, which made Wall Street begin to anticipate that the company's future capital expenditure may be higher. According to aggregated market expectations, Google's capital expenditure is expected to reach US$262 billion in 2027, nearly three times the level of 2025.

As the AI race heats up, Google's capital expenditure expands

Google is generally regarded as one of the companies most capable of investing in AI. Jonathan Kovsky, portfolio manager at Janus Henderson Investors, who holds Google shares, said: “Google has proven that it can get a good return on its investment. But the question is whether the company will continue to reap such returns.” He added, “If Google can show that the cloud business is growing faster while the search business continues to perform strongly, this will make investors more confident about the rationality of the company's spending and the overall return prospects of the stock.”

David Miller, chief investment officer of Catalyst Funds, who also holds Google shares, said, “These capital expenses are very large, yet investors still believe that as long as the data can prove that these investments will eventually pay off, then such expenses are reasonable.” “If Google can surpass the level of cloud business growth in the previous quarter, that would indicate that the company's investment is still quite cautious.”

In addition to the cloud business, Google's search business also continued to deliver strong performance. The company has launched a number of AI tools that have received positive market reviews. Wall Street remains optimistic about its semiconductor business. On Monday, Google shares were boosted by a report that the company was developing a server chip specifically designed to optimize its Gemini AI model. Gemini is considered to be one of the industry-leading AI models, although reports say that the release of the latest version of Gemini has been delayed because the company wants to further improve its capabilities, particularly in terms of code programming.

Market sentiment is changing as investors increasingly worry about whether the huge amount of money invested by big tech companies to build AI capabilities can reap meaningful returns. Since chipmakers became the main beneficiaries of these huge expenses, stock prices rose sharply. At the same time, the stock prices of the “Big Seven US stocks”, which provided large capital investments, hardly rose significantly. After a cumulative increase of about 66% in 2025, the increase in Google's stock price in 2026 was relatively limited, only 11%, and has fallen 14% since reaching an all-time high in May.

Among the “Big Seven US stocks,” only Apple (AAPL.US), which avoided the AI spending competition, and chip giant Nvidia (NVDA.US) outperformed Google this year. At the same time, however, Google's performance still surpassed that of Amazon (AMZN.US), which has invested heavily in AI in the “Big Seven,” rising 7.3% since 2026, Meta Platforms (META.US) falling 2.5%; Microsoft (MSFT.US) has fallen 18%, making it one of the largest technology stocks that has dragged down the S&P 500 index the most this year.

Furthermore, Google's current stock price corresponds to the expected price-earnings ratio for the next 12 months, which is slightly higher than the average of the past 10 years (21 times). In contrast, the current future price-earnings ratio of the S&P 500 index is about 20 times, while technology stocks account for a relatively high price-earnings ratio of the Nasdaq 100 index about 23 times.

Although Google's stock is valued at the highest among major AI investment companies, the market does not consider it overvalued, especially in the context of the company's future growth potential. Miller said, “Judging from our expected profit margins and the rate of growth we have seen, this valuation multiple is very reasonable. I think many investors wouldn't mind paying such a valuation for such high profit margins and high growth revenue. The value logic is actually very clear.”

Therefore, if Google's upcoming second-quarter earnings report satisfies investors and is sufficient to prove that its high computing power investment can continue to be converted into incremental revenue for advertising and cloud services, it is expected to dispel the market's doubts about the return on its 100 billion dollar AI investment, thereby opening up room for upward valuation. However, at a time when market concerns about excessive investment in AI are intensifying, once Google's financial report signals that capital expenditure is shrinking and AI transformation falls short of expectations, the valuation of the entire AI industry chain will be under pressure.