Deutsche Bank expects Google Cloud's Q2 revenue growth rate to be revised up to 70% (from 65%), potentially accelerating further to 75% in the second half of the year. Capital expenditure forecasts have been significantly raised, with 2027 now projected at $325 billion (previously $250 billion) and 2028 reaching $365-$370 billion, but financing and cash flow remain robust. Search advertising has not decelerated, and the Gemini delay does not alter long-term competitiveness; the market should focus on the pace of cloud revenue realization.
After the U.S. market close on July 22, Alphabet, Google's parent company, will release its Q2 2026 earnings report. The current market narrative is intensely focused on a core question: in the era of AI, is the ongoing expansion of capital expenditure (Capex) a profit-eroding burden or a forward-looking investment in future growth?
In a report released on July 20, Deutsche Bank pointed out that, despite lingering market concerns about slowing search growth, the delayed launch of the new Gemini model, and continued heavy AI investment, the variable truly worth watching is not Capex itself, but the potential for Google Cloud revenue growth to significantly exceed current expectations. If cloud service demand materializes as expected, the incremental profits generated over the next few years could be sufficient to cover the higher intensity of AI investment, leaving room for further upward revisions to the company's overall profitability.
For investors, the key takeaway from this earnings report is not whether Capex continues to rise, but how management characterizes the demand environment for cloud services, changes in order backlogs, and the future pace of revenue realization. These signals may determine whether the market will reprice Alphabet's valuation logic under the AI investment cycle.
Google Cloud: The Real Variable Determining Valuation
Deutsche Bank's most optimistic assessment centers on Google Cloud.
The analyst raised the Q2 revenue growth forecast for Google Cloud from 65% to 70% and expects further acceleration to 75% in the second half of 2026.
This forecast is based on three judgments. First, demand for AI computing power still outstrips supply, with Google recently even leasing some computing resources from SpaceX. Second, as of the end of Q1 2026, Google Cloud's order backlog had reached $462 billion, a 400% year-over-year increase. Furthermore, some hyperscale cloud providers, including Amazon, have already begun raising prices for certain cloud services.
More importantly, Deutsche Bank believes the market is significantly underestimating Google Cloud's future revenue scale. It projects Google Cloud revenue could reach $190-$195 billion in 2027, compared to the market consensus of around $142 billion. Calculated at a 30% profit margin, this incremental revenue alone could contribute approximately $15 billion in GAAP operating profit, equivalent to an earnings per share increase of about $1.
Capex Will Continue to Rise, but Financing Capacity is Also Strengthening
Regarding AI infrastructure construction, Deutsche Bank also significantly raised its future capital expenditure forecasts for Alphabet. The company previously projected 2026 Capex at $180-$190 billion and stated that 2027 would see a "significant increase" from this year.
Considering the order backlog, Deutsche Bank estimates that to meet existing demand, Google needs approximately 11.5 GW of computing capacity; under a baseline scenario for 2027, an additional ~10 GW would be needed. With an estimated construction cost of $30-$35 billion per GW, Deutsche Bank forecasts 2027 Capex at approximately $325 billion, higher than the previous $250 billion forecast; 2028 is expected to rise further to $365-$370 billion.
However, the analyst also notes that because Google employs a hybrid deployment of TPUs and Nvidia GPUs, its unit construction costs may be lower than market fears.
Simultaneously, the company's financing capacity remains ample. This quarter, Alphabet has already completed approximately $65-$70 billion in financing, including a $10 billion investment from Berkshire Hathaway, two equity offerings totaling about $36 billion, a maximum $40 billion ATM (at-the-market) program, and multi-currency senior note issuances.
As of the end of Q1 2026, the company held about $127 billion in cash and investments, plus approximately $107 billion in non-marketable securities; Deutsche Bank estimates that by the end of 2027, cumulative operating cash flow will reach around $420 billion.
Deutsche Bank believes Alphabet's current challenge is not "excessive Capex," but rather that the market is overly focused on investment while underestimating the pace of Google Cloud revenue realization.
Search Growth Has Not Slowed; Ad Budgets Are Starting to Flow to AI
Regarding Google's search business, the market's greatest concern stems from AI Overview potentially altering traditional search traffic.
However, Deutsche Bank's channel checks reveal new trends in advertiser behavior. While some advertisers maintain their original search budgets, an increasing number of brands are beginning to experiment with allocating ad budgets to AI Overview, while also increasing ad spend on Google Search and ChatGPT-related AI advertising.
Meanwhile, SimilarWeb data shows that Google website visits and page views improved in Q2 2026 compared to Q1. Based on this data, Deutsche Bank maintains its forecast for Google Search to grow 16.5% year-over-year on a constant currency basis in Q2, with Q3 expected to grow 14% year-over-year.
The analyst believes that even if the release timing for the new Gemini model is slightly delayed, current AI models are already continuously improving ad delivery efficiency, and the fundamentals of the advertising business have not materially changed.
Gemini Delay is Not Critical; User Growth Continues
The delayed release of Gemini has become another market focus. Google previously stated at I/O 2026 that Gemini 3.5 Pro would launch shortly thereafter, but as of now, the new model has not been officially released.
However, Deutsche Bank believes the model's release timing has not altered the user growth trend. SimilarWeb data shows that Gemini web visits and page views continued to grow in Q2, albeit at a slower pace. Sensor Tower data indicates that Gemini app downloads have retreated from 2025 highs, but total sessions continue to grow.
In a horizontal comparison, ChatGPT still maintains a lead, but its session volume over the past 12 months has largely stabilized; Meta AI has seen significant growth since launching Muse Spark; Grok has experienced declines in both downloads and session volume this year.
Therefore, Deutsche Bank views the adjustment to Gemini's release schedule as a short-term event that does not change Alphabet's long-term AI competitiveness.
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