Google Outlook: Verification of AI Investment Conversion

After US markets close on April 29th, Alphabet, the parent company of Google, will release its financial report for the first quarter of 2026. As a tech giant in the AI race with a search foundation, cloud business growth engine, and full-stack technical capabilities, the core proposition of this report is to verify whether its huge AI investment can be transformed into sustainable profit growth. According to the Bloomberg analyst consensus, the market expects the company's revenue for this quarter to reach $92.2 billion, a year-over-year increase of 20.6%; adjusted earnings per share will be $2.64, a year-over-year decrease of 6.1%, and the decline in profit is mainly due to the depreciation pressure from the huge capital expenditures on AI infrastructure.

Performance Expectations: Cloud Business Leads Growth, Advertising Business Remains Robust

Looking at the business segments, Google's cloud business remains the core growth engine, with market expectations that this quarter's revenue will reach $18.4 billion, a significant year-over-year increase of 50.1%. Top investment banks such as JPMorgan, Wells Fargo, and UBS even predict that the year-over-year growth rate of cloud revenue will be as high as about 61%, driven by the continuous explosion of AI computing power demand and the gradual release of a backlog of orders worth as much as $240 billion.

The advertising business, as the foundation of revenue, is expected to achieve $76.91 billion in revenue this quarter, a year-over-year increase of 15%. Of this, YouTube advertising revenue is expected to reach $10.03 billion, a year-over-year increase of 12.4%; search and other advertising revenues are expected to maintain steady growth, and the core focus should be on the potential impact of AI Overviews (AIO) on traditional search traffic and advertising monetization efficiency.

Cloud Business: Profitability Already Achieved, Focusing on Margin Improvement Space

It needs to be clarified that Google's cloud business has already achieved positive profitability, contrary to the market's misunderstanding of "about to become positive." In fact, Google Cloud has been profitable since 2023, and in 2025, the operating profit margin fluctuated upwards, from 17.76% in Q1 to 30.1% in Q4. In the fourth quarter of 2025, Google Cloud achieved a quarterly revenue of $17.7 billion, with an operating profit of $5.3 billion, achieving an operating profit margin of 30.1%, an increase of 12.6 percentage points year-over-year, and profitability continued to be realized.

The core focus of the market on the cloud business this quarter is whether it can continue to improve the operating profit margin while maintaining growth above 50%. According to the estimation of CMB International, thanks to the scale effect that continues to be released and the improvement in operational efficiency, there is still room for Google Cloud's profit margin to rise. In 2025, the company optimized the model and reduced the unit service cost of Gemini by 78%. The benefits of this efficiency improvement are expected to continue to be reflected in the Q1 of 2026.

Capital Expenditures: Aggressive Investment Makes Break-even Point a Market Focus

Capital expenditure is the biggest focus of this report. Google has significantly increased its capital expenditure guidance for the full year of 2026 to $175 billion to $185 billion, doubling from approximately $90 billion in 2025. This huge amount of money is mainly invested in the expansion of data centers and the purchase and research and development of customized high-performance AI chips (TPU).

The core of the current market game is whether this "aggressive" investment has crossed the break-even point and can start to translate into marginal improvement in profitability. UBS estimates that the company's quarterly capital expenditure in Q1 2026 will reach $29.4 billion, a year-over-year increase of 78%. Considering that capital expenditures generally adopt a 5-year depreciation cycle, investors need to pay close attention to whether the acceleration of revenue growth can cover the additional annual depreciation cost of about $10 billion, as this will directly determine the profitability performance.

Influence of SGE: Short-term Advertising Pressure, Long-term Opportunities and Risks Coexist

The impact of Google's search-generated experience (SGE, now known as AI Overviews) on the advertising business remains the core observation point in the market. Goldman Sachs analysis points out that the "front-loaded answers" model of AI Overviews may lead to a short-term decrease in the advertising click-through rate (CTR) of information queries by 1-3 percentage points. However, in the