Alphabet's Gemini delay, spending worries loom over earnings

By Deborah Mary Sophia and Rashika Singh

July 21 (Reuters) - Alphabet faces heightened scrutiny from investors as a delay in the launch of a model key to its AI ambitions adds to worries over the payoff from massive data-center spending, months after raising expectations with a blockbuster quarter for cloud sales.

The Google parent — set to report second-quarter results on Wednesday — has delayed from June the launch of its next flagship model, Gemini 3.5 Pro, built especially to catch up with rivals in the lucrative market for AI coding tools and agentic AI tasks.

The setback has raised concerns as Chinese open-source models increasingly challenge top U.S. labs for customers amid growing worries about steep AI bills that have also fanned fears that Big Tech could be over-building capacity.

"While Google is missing the boat on AI coding and that's a very real growing concern ... Google's strategy is all about the ecosystem," said Dave Wagner, portfolio manager at Aptus Capital Advisors.

Alphabet increased its 2026 capital expenditure guidance to between $180 billion and $190 billion in ​April and has announced plans to raise about $85 billion in equity offerings, including an investment from Berkshire Hathaway.

Alphabet shares are down about 9% since late April — when it posted a 63% jump in cloud sales — lagging other so-called "Magnificent Seven" stocks during the period.

The company has also lost high-profile employees, including Gemini co-lead Noam Shazeer and Nobel laureate John Jumper, a key Google DeepMind executive, to rivals.

Analysts have said Google's advantage in the AI race lies in its ownership of a large consumer distribution network, on top of its AI models, cloud infrastructure and custom silicon.

Overall, Alphabet shares remain nearly 13% higher for the year, making it the second-best performer among the Mag 7 group.

Analysts expect the company's second-quarter revenue growth to ease only slightly from the first three months of 2026, as the cloud business drives results.

Alphabet is expected to post a 21.3% rise in revenue for the April-June period to $116.93 billion, according to data compiled by LSEG. Cloud sales are estimated to grow at a similar 64% pace, while ad revenue is forecast to expand at a slower 13.7%.

The cloud business has benefited from growing deals for Google's custom AI chip business, including multi-billion-dollar agreements with Meta Platforms and Anthropic.

(Reporting by Deborah Sophia and Rashika Singh in Bengaluru; Editing by Sriraj Kalluvila)