Alphabet and Tesla Ahead of Earnings: Will the Tech Giants Shake Wall Street?

Alphabet ahead of earnings: Are record AI investments finally paying off?

Alphabet will report its second-quarter earnings after Wednesday's closing bell on Wall Street. Although the company has consistently beaten earnings expectations over recent quarters, investors are now primarily focused on Google Cloud's growth, AI monetization, and management's commentary on its record AI infrastructure investments. The key question is whether Alphabet's largest-ever investment program is beginning to translate into stronger profitability and faster revenue growth.

Key expectations ahead of earnings

• Wall Street expects EPS of approximately $2.9–3.0 and revenue of $101–117 billion (depending on the consensus source), representing roughly 24% year-over-year growth.
• Alphabet has beaten EPS estimates in each of the past eight quarters and has missed revenue expectations only once during that period.
• Google Cloud remains the company's main growth engine, with analysts forecasting approximately $22.8 billion in revenue and nearly 67% year-over-year growth.
• Investors will closely watch whether quarterly capital expenditures (CAPEX) reached roughly $45 billion and whether management reaffirms its 2026 AI investment plan of $180–190 billion.
• Free cash flow declined 47% year over year last quarter due to record AI investments, so investors will be looking for evidence that these expenditures are beginning to generate stronger returns.
• YouTube advertising revenue is expected to reach $10.8 billion (+9.8% YoY), while Google Search & Other revenue is projected at approximately $63.5 billion (+17.3% YoY).
• Bank of America raised its Google Cloud growth forecast to 70% and maintained a Buy rating, while Wells Fargo, Wolfe Research, and BMO Capital increased their price targets to $438, $460, and $455, respectively.

Google Cloud must prove AI investments are paying off

Google Cloud is expected to be the main focus of the earnings report. Last quarter, Cloud revenue surged 63% year over year to $20 billion, while operating margin expanded to 32.9% from 17.8% a year earlier, marking its fastest growth in years and significantly outperforming market expectations.

Analysts now expect Google Cloud revenue to reach approximately $22.8 billion, implying another 67% year-over-year increase. Beyond growth itself, investors will be looking for evidence that the cloud business is generating sufficient profitability to justify Alphabet's unprecedented AI infrastructure spending.

Record CAPEX and Gemini remain in the spotlight

Alphabet increased its 2026 capital expenditure guidance to $180–190 billion and is estimated to have spent roughly $45 billion during the second quarter on AI infrastructure and data centers. The company has also expanded Gemini deployments through partnerships with Accenture and Cognizant while continuing to develop its proprietary AI hardware, including the next-generation Ironwood TPU and the new Frozen v2 AI accelerator.

Investors will pay close attention to management's comments regarding Ironwood availability, Gemini Enterprise demand, and the impact of rising hardware costs on future spending plans. The reported delay of Gemini Pro 3.5 is also likely to be discussed, although many analysts believe it should have only a limited impact on near-term financial results.

Advertising continues to finance Alphabet's AI expansion

Despite its massive AI investments, advertising remains Alphabet's largest source of revenue. Last quarter, Google Search & Other revenue increased 19% to $60.4 billion, demonstrating that the search business remains resilient despite the growing popularity of AI chatbots and AI Overviews.

Wall Street currently expects:

• Google Advertising revenue of $81.68 billion (+14.5% YoY),
• Google Search & Other revenue of $63.54 billion (+17.3% YoY),
• YouTube Ads revenue of $10.76 billion (+9.8% YoY),
• Google Network revenue of $7.08 billion (-3.8% YoY).

Beyond the headline numbers, investors will closely examine whether AI features in Google Search are improving advertising monetization or merely serving as an expensive defensive response to increasing competition from OpenAI and Anthropic. The answer could be the biggest driver of the stock's post-earnings reaction.

Alphabet (D1 chart)

Alphabet shares are currently trading around 10% below their all-time highs despite the company continuing to deliver record financial results.

Source: xStation5

Tesla down around 14% this year: Can earnings reverse the trend?

Tesla will also report second-quarter earnings after Wednesday's market close. This time, investors are paying less attention to the headline financial results because vehicle delivery figures have already been released and significantly exceeded expectations. Instead, the key question is whether Elon Musk can convince investors that Tesla's record spending on artificial intelligence, Robotaxi, and the Optimus humanoid robot justifies one of the highest valuations in the technology sector.

Key expectations ahead of earnings

• Wall Street expects revenue of approximately $26.2–27.6 billion and EPS of $0.50–0.55.
• Tesla delivered 480,126 vehicles in Q2 (+25% YoY), well above analyst expectations of roughly 400,000 vehicles, while energy storage deployments reached a record 13.5 GWh.
• Investors will primarily focus on automotive gross margin, which consensus estimates suggest could decline from 19.2% to around 18.1% due to aggressive pricing and financing incentives.
• Analysts expect negative free cash flow of approximately -$3.25 billion alongside quarterly CAPEX of around $6.7 billion.
• Tesla plans to invest more than $25 billion during 2026, while Morgan Stanley estimates full-year CAPEX could reach as much as $26.8 billion.
• Investors will look for updates on Robotaxi operations in Austin, the Optimus production timeline, Cybercab, and Tesla's AI infrastructure.
• Options markets imply a post-earnings move of approximately ±5.5% to ±8%, highlighting the market's high expectations for Elon Musk's commentary.

Vehicle deliveries are already known — now profitability matters

Vehicle deliveries are unlikely to surprise investors, as Tesla already reported 480,126 deliveries in the second quarter, up 25% year over year and marking its strongest quarterly growth since Q3 2023. Energy storage deployments also reached a record 13.5 GWh.

Most analysts believe this strong delivery performance is already reflected in Tesla's share price. Instead, attention will shift to automotive gross margin, which Wall Street expects to decline to around 18.1% from 19.2% in the previous quarter, indicating whether stronger sales have come at the expense of profitability.

Record AI spending and Robotaxi remain the key focus

Tesla's earnings call is expected to focus less on vehicles and more on artificial intelligence. The company plans to spend more than $25 billion in 2026 on AI infrastructure, Robotaxi development, Optimus production, and expanding its computing capacity.

Wall Street expects free cash flow to fall to around -$3.25 billion in Q2 as quarterly CAPEX reaches approximately $6.7 billion. Morgan Stanley estimates total capital spending could reach $26.8 billion this year. Investors therefore want to know whether Tesla's improving automotive business can generate enough cash to finance its rapidly expanding physical AI ambitions.

Robotaxi, Optimus and SpaceX could dominate the earnings call

An increasing number of analysts believe Tesla is now valued primarily on the potential of Robotaxi and Optimus rather than its traditional automotive business. Morgan Stanley continues to view autonomous vehicles and humanoid robots as the company's main long-term value drivers, while RBC points to speculation about a potential future relationship between Tesla and SpaceX following SpaceX's IPO.

Investors will seek updates on the Robotaxi rollout in Austin, which remains behind Elon Musk's earlier projections, as well as production timelines for Optimus and Cybercab. Markets will also be looking for more concrete milestones on autonomous driving and AI infrastructure, as these initiatives are becoming increasingly important for Tesla's valuation compared with vehicle sales alone.

Tesla (D1 chart)

Tesla shares are currently trading around 20% below their all-time high while remaining near the $380 level.

Source: xStation5