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Alphabet Earnings Preview: Can Google Cloud Quiet the Capex Debate?

By: Mike Butler

• Alphabet stock closed Monday at $316.80, about 22% below its 52-week high of $408.61 and up only around 2% year to date, making GOOGL one of the laggards among the mega-cap AI names heading into earnings.
• Analysts expect Q3 EPS near $3.00, up about 5% from $2.87 a year ago, on revenue of roughly $127.8 billion, which would represent growth of about 25% and a possible acceleration from the 24% pace in Q2.
• Google Cloud is the swing factor after revenue jumped 82% to $24.8 billion last quarter, with backlog reaching $514 billion and analysts projecting Q3 cloud revenue near $29 billion.
• Alphabet raised 2026 capex guidance to $195 billion to $205 billion in July, free cash flow turned negative last quarter, and the stock fell 7.1% the next session despite a revenue beat.
• Options are pricing in a move of roughly 6% in either direction, and Alphabet’s growing Anthropic stake could make GAAP earnings noisy again.

Alphabet Earnings Preview - October 2026

Alphabet (NASDAQ: GOOGL) reports third quarter results on Wednesday, October 28, after the close. The stock has had a choppy year. GOOGL set a record close of $402.12 on May 13 and has since slid back to $316.80, with a 52-week range of $264.28 to $408.61. The pullback has been steady, from roughly $359 four weeks ago, and it leaves the roughly $3.87 trillion market cap sitting well below where the stock traded in the spring.

The implied volatility picture is elevated relative to mega-cap peers. Options are pricing in a move of about 6% of the notional value of the stock, which from Monday’s close puts the expected range near $298 to $336. That is a bigger expected move than Microsoft’s roughly 5% on the same night, and it reflects how much the market is wrestling with the earnings reaction after July, when GOOGL sold off sharply on a beat. Google has a similar December 2026 implied volatility when compared to Microsoft - about half of the expected move for the week is priced into December, signaling that midterm elections and year-end IV could play a role for the next few months.

Google Cloud Growth: The Engine Behind the Alphabet Story

Cloud is where Alphabet’s AI investment is showing up most clearly. Revenue grew 82% to $24.8 billion in Q2, operating income climbed to $8.8 billion from $2.8 billion a year ago, and the segment’s operating margin widened to roughly 36%. Backlog grew by more than $50 billion sequentially to $514 billion, helped in part by custom TPU deployments inside customer data centers. Analysts are looking for Q3 cloud revenue near $29 billion, with J.P. Morgan higher at about $30 billion, which would be roughly double the $15.2 billion reported a year ago. Gemini’s reach is expanding too: nearly 90% of the Fortune 100 now use Gemini Enterprise, and the Gemini app counts about 950 million monthly users.

Alphabet’s $200 Billion Capex Bill: Is AI Spending Paying Off?

The tension in this report is the gap between revenue growth and profit growth. Consensus has revenue up about 25% but EPS up only about 5%, a reminder that depreciation from AI infrastructure is weighing on the income statement. Capex hit $44.9 billion in Q2, double the year-ago level, and full-year guidance was lifted to $195 billion to $205 billion from $180 billion to $190 billion. Free cash flow was negative $5.9 billion last quarter, and R&D expenses grew 32% on higher AI talent costs and depreciation. Alphabet still has $242.5 billion in cash and marketable securities against $98.2 billion of long-term debt, but investors want to see that cloud growth can outrun the spending.

One more wrinkle for EPS: Alphabet’s reported Q2 earnings of $9.11 per share included a $98 billion net gain on equity securities. With Anthropic filing for its IPO this week, and Alphabet holding a meaningful stake, GAAP figures could swing again, so most analysts focus on the underlying consensus near $3.00.

Bullish Case for Alphabet Earnings

The bull case rests on cloud momentum and a washed-out setup. Revenue has now grown at a double-digit rate for 12 straight quarters, Search and Other grew 17% to $63.3 billion in Q2, and YouTube advertising rose 13% to $11.1 billion, showing AI features are adding monetization without hurting usage. Analysts have raised cloud revenue estimates by roughly 11% since July, and 12 of 13 analysts tracked by Visible Alpha rate GOOGL a Buy with an average target near $433, about 35% above the recent close. Bulls also argue the capex shock has already been absorbed. D.A. Davidson’s Gil Luria has suggested Alphabet may have already faced its reckoning, while Meta’s report last week showed what a punishing reaction to spending looks like. Add the Anthropic angle, where Alphabet holds an equity stake, supplies TPU capacity, and has an option to buy up to $10 billion of additional shares in the IPO, and bulls see optionality that the current price may not reflect.

Bearish Case for Alphabet Earnings

Bears point out that GOOGL beat in July and still dropped 7.1% the next day. Spending is the issue: with capex near $200 billion and free cash flow already negative, any hint that 2027 spending rises again could overwhelm a strong cloud print. Core Search is also decelerating, with growth easing from 19% in Q1 to 17% in Q2 against tougher comparisons, and the Network business is shrinking, down 1% last quarter. The technical picture is unfriendly, with the stock down about 7% over the past four weeks and well off its May highs. The AI complex has been jittery as well, with selloffs on October 8 and October 22 on worries about AI funding. Anthropic’s reported valuation drop from roughly $2 trillion to about $1.5 trillion in private markets adds a reminder that AI mark-to-market gains can reverse. If cloud growth merely meets lofty expectations while margins compress, a 6% downside move is well within reach.