Alphabet Q1 Earnings Preview: TPU External Sales Show Promise As Gemini Plays Catch-Up

$Alphabet-A (GOOGL.US)$ $Alphabet-C (GOOG.US)$ is scheduled to release its financial results post-market on April 29th ET.

Compared to last year's momentum, Google's stock price has been relatively weak this year. The earlier release of Gemini ignited investor confidence in Google's AI capabilities. However, compared to OpenAI's user subscription revenue and Anthropic's progress in Enterprise AI and AI Coding, Gemini faces the challenge of relatively slow monetization.

In terms of chips, Google just announced its eighth-generation TPU at Cloud Next 2026 (April 22): the 8T is designed for training and the 8I for inference, and it is expected to be available later this year. This is the first time Google has separated training and inference tasks into separate chips, marking a major shift in its AI hardware strategy.

In fact, prior to the new product launch, TPUs were already expected to be supplied to Meta and Anthropic. Meta initially used TPUs indirectly through Google Cloud services.

Furthermore, Google Cloud services were another focus of attention. Despite a 48% surge in Google Cloud service growth in the previous quarter, its high capital expenditure guidance caused its stock price to fall the following day.

Core Financial Indicators

– Alphabet's revenue is expected to be $106.91B for 2026 Q1, up 18.5% YOY;

– EPS is estimated to be $2.620, down 6.76% YOY. Market expectations for Google's EPS have been consistently conservative.

Two Major Segments to Watch

Google Services: AI-Powered Search & Ad Growth

This season, Google and Meta will release their earnings reports on the same day, so we haven't yet received direct clues about advertising unit prices. Nevertheless, as AI-optimized ad recommendation algorithms become increasingly precise, advertisers are achieving superior placement outcomes, naturally increasing their willingness to pay premium rates.

For the advertising business, investors should monitor key metrics including ad click growth rates, cost-per-click (CPC) trends, and overall advertising profit margins.

- Paid clicks growth in 2025 Q4 was 6%; 2026 Q1 is expected to be 5.0%.

- Cost per click growth in 2025 Q4 was 11.0%; 2026 Q1 is expected to be 9.3%.

Google Cloud Momentum

Investors will also closely watch whether Google Cloud can maintain its high growth rate.

Bloomberg data shows that the market expects Google Cloud's revenue to reach $18.33B, corresponding to an astonishing growth rate of 49.5%, exceeding the previous quarter's 47.8%.

In addition, Alphabet's capital expenditures (CapEx) will also affect the revenue expectations of the entire chip sector, especially its partner Broadcom.

The segment’s operating margin reached 30.1% last quarter, significantly higher than 23.7% in Q3 2024. Economies of scale have allowed Alphabet's cloud business profit growth to outpace its revenue growth.

Option Market Signals

Alphabet's put/call ratio is 0.83, rebounding from its low point. The shares currently have an implied volatility (IV) of 39.40%, which is at the 79 percentile historically.

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Summary of Risks and Opportunities

– Potential Positive Catalysts: Gemini integration with Google's existing ecosystem

– Risks to Monitor: The risk of excessive CapEx; Gemini's slow commercialization

– Valuation: Alphabet's current PE (Price-to-Earnings) ratio is 31.39 times, which is at the 94th percentile of its historical range over the past five years.

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