Alphabet reports earnings this week on Wednesday after market close and the stock is trading materially below its record highs while year-to-date performance remains muted.

Over a two-year span the shares have posted strong gains yet the last six months show marked weakness amid a correction in the artificial intelligence rally.

Google has evolved beyond an internet advertising model into a major AI infrastructure provider, competing in cloud computing, designing custom AI chips and pursuing commercial autonomous driving through Waymo.

That expansion into capital-heavy businesses helped lift the company to a multitrillion-dollar market value but it also attracted skepticism about whether heavy AI-related spending will yield sufficient returns and how Google will stack up against OpenAI and Anthropic.

The Services segment remains the core cash generator and includes Google Search advertising, YouTube ads and subscriptions, Gmail, Google Maps, Android, Chrome, Google Play, Pixel devices, Google One and other consumer offerings; advertising continues to drive most revenue in the segment and those services produced $94.5 billion in revenue last quarter.

Google Cloud added $24.8 billion in revenue last quarter, supplying cloud computing capacity, data storage, AI infrastructure, enterprise software and access to Google’s AI models.

Across all business segments the company recorded $119.69 billion in revenue last quarter, representing 23.98% year-over-year growth, while operating income totaled $40 billion, a 29.57% year-over-year increase.

At a multitrillion-dollar market capitalization the stock’s forward price-to-earnings multiple sits below its decade average, reflecting the market’s reduced willingness to pay the previous premium amid growing questions about capital intensity and returns.

A primary concern from the prior report was free cash flow, which fell into negative territory for the first time at -$5.86 billion; quarterly capital expenditures reached $44.9 billion, more than double the level from the same quarter a year earlier, and management raised full-year 2026 CapEx guidance to a range of $195 billion to $205 billion with spending expected to expand into 2027. Nearly all of that increased spending is intended to support AI infrastructure.

Investors initially welcomed higher CapEx for AI buildout but sentiment has shifted as spending ballooned and the cost of capital rose. Google Cloud expansion remains a bright spot with year-over-year growth of 82% and operating income from the Cloud segment rising from about $2.8 billion to $8.8 billion; results from this segment will be a primary focus because weak Cloud performance could ripple to other major cloud providers.

The company reported a backlog of $513.9 billion, underscoring long-term demand, yet the move toward a more capital-intensive model increases near-term uncertainty. OpenAI and Anthropic are moving toward public markets and are expected to generate substantial revenue, a development that could shift market attention away from traditional large-cap tech names.

Options markets ahead of the report show elevated implied volatility around earnings; the quoted implied volatility reading is 41.64% with the market pricing a sizable move into the event and implied volatility near 82% above its recent normal level, which has raised option premiums.