Alphabet Inc. (GOOGL) Q2’26 Review: The AI Investment Cycle Proceeds Upward in its Trajectory (as Google Cloud Revenue Estimates Are Revised Higher)

Research evidence excerpt

Alphabet Inc. (GOOGL) Q2’26 Review: The AI Investment Cycle Proceeds Upward in its Trajectory (as Google Cloud Revenue Estimates Are Revised Higher)

Goldman Sachs Alphabet Inc. (GOOGL)

how the company can balance allocating compute across internal product development,

external client needs and a desire to be at the forefront of model performance achieving

an industry leading level at the frontier. In addition, qualitative commentary about

tougher revenue comps in the advertising business and margin compression (rising

depreciation and 3rd party compute deals) in the Google Cloud segment operating

margins now will likely be debates as to whether Street estimates properly calibrated the

company’s framing.

Looking long-term, we continue to view Alphabet as well-positioned against both the

current (mixture of desktop and mobile computing utility at global scale) and potential

future (AI/ML; personalization; lowered friction to applications) computing landscapes

in the years ahead. We continue to advocate that the combination of AI distribution at

scale (collection of 1bn+ user applications) and scale of compute to both invest and

drive efficiencies remain as a dual under-appreciated narrative in terms of AI over the

long-term, particularly as we move from the “infrastructure” to “platform” and

“application” layers of AI monetization. In addition, we increasingly see Alphabet

(product & go-to market strategy alongside ability to scale compute capacity) as well

positioned to play offense across the rising demand for AI products services across both

consumer and enterprise computing landscapes.

We reiterate our Buy rating & lower our 12-month PT from $440 to $435 as we update

our forward operating estimates to reflect this earnings report & management

commentary.