SerpApi.Org
Alphabet's (GOOGL) AI spending has surged. So have sales and profits.
Earnings after the bell will show whether that unlikely combination can hold.
So far, Alphabet has made the balancing act look almost easy.
Its operating margin — the share of sales left after running the business — reached 36.1% in the first quarter, its highest level in five years. Revenue grew 22%, while operating income jumped 30%.
Growth has helped do the heavy lifting.
Google Cloud revenue surged 63% last quarter to more than $20 billion, while Search revenue rose 19%. Cloud operating income tripled, giving Alphabet a rapidly expanding profit engine alongside its advertising business.
Now the bill is getting much bigger.
Alphabet spent $35.7 billion last quarter on servers, data centers, and other infrastructure and equipment. Wall Street expects quarterly capital expenditures, or capex, to approach $44 billion in Wednesday's report, while the company plans to spend as much as $190 billion for the full year.
It has already warned that 2027 spending will be "significantly" higher.
The cash goes out immediately, but the hit to profits arrives over time.
Once new servers and data centers enter service, Alphabet gradually records their cost through depreciation. Alphabet generally spreads the cost of servers and network equipment across six years, meaning today's spending can weigh on profits well into the future.
That delayed bill is already growing. Alphabet said depreciation would accelerate this year as earlier investments entered service, adding to energy and other data center costs.
Wall Street expects Alphabet's operating margin to ease to 34.7% this quarter as spending approaches $44 billion.
Holding margins near 35% while sales keep growing around 20% would show Alphabet is still outrunning its AI bill. A much weaker margin as spending climbs would show the bill is catching up.
Jared Blikre is the global markets and data editor for Yahoo Finance. Follow him on X at @SPYJared or email him at [email protected].
Click here for in-depth analysis of the latest stock market news and events moving stock prices
Read the latest financial and business news from Yahoo Finance
