Tonight, Google submits the exam paper for the entire AI market.

By: Chaoxiang Research

At 4:00 AM Beijing Time on July 23, Alphabet will release its Q2 2026 earnings report, with a conference call scheduled for 4:30 AM. This is the first earnings report among the "Magnificent Seven," with Microsoft, Meta, Amazon, and Nvidia all scheduled after it. The options market has already priced in this night: implied volatility of 5.3%, corresponding to a company with a market cap of $4.5 trillion, implying a single-day swing of over $200 billion.

The market is trading it as a corporate earnings report, but in reality, it is the midterm exam for the entire AI capital expenditure cycle.

If answered well, the earnings season for the subsequent giants will go smoothly; if answered poorly, from Nasdaq to A-share optical modules, no one will be able to remain unaffected.

Six Days Ago, the Market Tore Open a Gap First

On July 16, Bloomberg cited ten current and former Google employees reporting: Gemini 3.5 Pro is already months behind schedule due to programming capabilities failing to meet internal standards. On that day, Alphabet's stock price closed down 4.4%, with approximately $200 billion in market cap evaporating.

The reason for the market sell-off had nothing to do with revenue, nothing to do with profit, only with a shipping schedule.

Pichai personally promised a June release at the I/O conference in May, June passed, and Google was left with only the statement "currently testing with partners." Bloomberg's report filled in the remaining information: training data was updated once at the end of June, specializing in programming, but the results disappointed internally; engineers were frustrated, and some researchers flowed to competitors.

Programming is the battlefield with the highest commercial value for large models today; it directly determines whether AI agents can independently complete multi-step tasks, and also directly determines which enterprise customers pay money to.

OpenAI and Anthropic are shipping every week; for every week Gemini 3.5 Pro is delayed, enterprise developers become one step more bound to competitor platforms.

This decline exposed the new contract of 2026 AI trading: the market tolerates you burning nearly $200 billion a year, provided the model must arrive at port on time, and be competitive enough upon arrival.

Once the shipping schedule is breached, capital expenditure changes from a "moat" back to a "bill."

Tonight's earnings report is Google's first performance review under this new contract.

Three Numbers That Truly Determine the Direction Tonight

Market consensus is out in the open: revenue of approximately $116.8 billion, a year-over-year increase of about 21%; earnings per share of $2.86 to $2.89, a year-over-year increase of about 24%. Google has exceeded expectations in all of the past four quarters; a simple beat can no longer drive the stock price, the real variables are hidden in three clues.

Cloud growth rate and conversion of backlog orders.

In Q1, Google Cloud revenue increased 63% year-over-year, significantly leaving behind Azure's 40% and AWS's 28%, with backlog orders nearly doubling to $462 billion.

CFO Ashkenazi left a key testimony last quarter: if capacity could keep up with demand, cloud revenue could have been higher. This statement makes the issue very pure; what needs to be verified tonight is the capacity ramp-up speed, and within that $462 billion, how much is turning into real money at the pace promised by management (about half within 24 months). If growth rate holds above 60%, the AI infrastructure story continues; if it slows down significantly, the market will immediately recalculate the valuations of all cloud vendors.

Where the money goes and hints for 2027.

Google's 2026 capital expenditure guidance is $180 billion to $190 billion, more than five times the $32.3 billion in 2023, and management has indicated a "significant increase" for 2027. The cost is written on the cash flow statement: Q1 free cash flow declined nearly 47% year-over-year, and in June, another $80 billion in stock was issued to fund AI expansion. On tonight's conference call, any specific numbers regarding the 2027 expenditure scale may sway the stock price more than the Q2 performance itself. Expenditure upward revision paired with strong cloud growth is offense; expenditure upward revision paired with cloud slowdown is disaster.

TPU turns from cost advantage into a second revenue curve.

This is the hidden line with the most room for imagination in this earnings report.

Google has begun selling TPU computing power to external customers; a computing power leasing company backed by Blackstone plans to rent TPUs to AI labs starting in 2027; Anthropic signed a letter of intent for a million Ironwood chips; Meta was exposed considering deploying TPUs in its own data centers in 2027. Management previously guided that hardware sales would start contributing revenue in the second half of 2026, with the bulk falling in 2027. Tonight, even just one sentence confirming the progress of TPU external sales is enough to reprice the "Google Chain."

Transmission Chain: From Mountain View to A-Share Optical Module Workshops

The radiation radius of Google's earnings report has long exceeded the US stock market.

At the US stock level, as the giant handing in its paper first, Google's conference call will set the tone for the entire earnings season. Cloud growth and capital expenditure guidance will be directly input into the expectation models for Microsoft and Meta; any progress on TPU is a direct stress test for Nvidia. The scene from last November when rumors of Meta negotiating to purchase TPUs emerged, causing Nvidia to fall in a single day and forced to publicly declare "technology still leads the industry by a generation," is still fresh in memory.

At the A-share level, the "Google Chain" is already one of the highest-weighted narratives in the computing power market.

The deployment method of TPU clusters (9216 liquid-cooled chips per cluster, interconnected via OCS all-optical switching) determines that its unit consumption of optical modules, optical switching, liquid cooling, and high-speed PCBs is far higher than traditional architectures. Zhongji Innolight and Eoptolink sit in the top three weights of the ChiNext, with order visibility ranked until 2027; Sai MicroElectronics' MEMS micromirror chips exclusively manufacture Google OCS. Tonight's capital expenditure guidance is the water level line for these companies' orders for the next six quarters. If expenditure is revised upward, the valuation controversy of optical modules will automatically settle; if expenditure falls short of expectations or cloud slows down, the crowded computing power trade will welcome the fiercest stampede of the year.

Three Scenarios

Cloud exceeds expectations, expenditure pace controllable. Google Cloud growth holds above 60%, 2027 expenditure gives direction but isn't scary, TPU external sales confirmation lands. Stock price challenges the previous high of $408, AI trading fully warms up, A-share computing power chain follows the rise. This is the bull scenario, and also the path implied by the current 43 analysts giving buy ratings with an average target price of $428.

Earnings beat, but sense of expenditure control loss worsens. Revenue and profit both exceed, 2027 expenditure numbers too aggressive, free cash flow continues to deteriorate, Gemini new shipping schedule still absent. Stock price spikes and falls back, market sentiment turns to judgment of "increasing revenue but not profit," pressure transmits to Microsoft and Meta one week later.

Cloud slowdown. Growth rate falls below 55%, or backlog order conversion falls short of expectations.

This is tail risk; once it appears, the kill range will cover all cloud vendors and the entire computing power supply chain, Nvidia cannot be spared.

According to current position structure, the third scenario has the lowest probability, the second is underestimated. The market overly focuses on whether there is a beat, the real odds are hidden in the Q&A session of the conference call.

At 4:30 AM, the conference call connects, the analyst's first question will likely have nothing to do with Q2 numbers.

Everyone wants to know the same thing: Gemini 3.5 Pro's new shipping schedule, what date exactly is it.