Alphabet's stock performance hinges on the answers to these 3 big AI questions

Alphabet's upcoming Q3 earnings report is highly anticipated, with analysts projecting $99.96 billion in revenue and $2.26 EPS, potentially marking the company's first quarter exceeding $100 billion. Investors will closely monitor three key AI-related areas: Google Cloud's growth, aiming for 35% acceleration driven by AI workloads and custom TPUs, exemplified by the Anthropic deal; Gemini's competitive standing against rivals like OpenAI's ChatGPT, especially given new product launches such as Sora and ChatGPT Atlas; and the resilience of Google Search amidst threats from AI-native offerings, despite strong recent paid click growth. The report will provide critical insights into Alphabet's AI leadership and its ability to monetize these advancements, following a 50% stock surge since July.

Analysis

Alphabet's upcoming Q3 earnings report is pivotal, with analysts forecasting $99.96 billion in revenue and $2.26 EPS, potentially marking the company's first quarter exceeding $100 billion. This report follows a significant stock surge of approximately 50% since July, placing Alphabet's 42% YTD gain on par with Nvidia for 2025 performance expectations. The market's mild positive sentiment (0.35) and speculative tone underscore the high stakes associated with the AI narrative.

A key focus will be Google Cloud's acceleration, with UBS analyst Karl Keirstead setting a 35% revenue growth benchmark for Q3, up from 32% in Q2. This growth is increasingly tied to AI workloads, where Google's custom Tensor Processing Units (TPUs) provide a competitive edge, as highlighted by Melius Research analyst Ben Reitzes. The recent deal to sell TPUs to Anthropic demonstrates external demand and suggests a potential challenge to Nvidia's AI semiconductor dominance.

Investors are closely monitoring Gemini's competitive standing against rivals like OpenAI's ChatGPT, especially given new product launches such as Sora and ChatGPT Atlas, which threaten Google's YouTube and Search market share. Despite these threats, Google's Search business remains robust, showing a reacceleration in paid clicks to 4% in Q2, with Bank of America analyst Justin Post anticipating continued strong results. The effectiveness of Gemini's innovation and strategic expansion will be crucial for Alphabet's stock performance.

Key Decisions for Investors

• Investors should closely monitor Google Cloud's Q3 revenue growth, specifically its acceleration towards the 35% benchmark, as an indicator of AI workload capture and TPU monetization potential.
• Assess updates on Gemini's user growth, new features, and strategic partnerships, as its competitive performance against OpenAI's offerings is a critical driver for Alphabet's stock.
• Observe the paid click growth in Google Search for signs of continued strength, which would mitigate concerns about AI-native offerings impacting advertising revenue.
• Given the significant 50% stock surge since July, investors should evaluate current valuations relative to the earnings report's ability to validate high growth expectations, particularly in AI segments.