Alphabet's AI Spending Outpacing Profits: 35% Margin at Risk

Alphabet's (GOOGL) first-quarter operating margin of 36.1% marks its highest level in five years. Google Cloud revenue surged 63%, while Search revenue grew 19%. However, the company's $35.7 billion spending in 2026 is expected to rise to $44 billion in the next quarter. Wall Street forecasts margins may drop to 34.7% in 2027, signaling AI spending is outpacing profitability. Depreciation costs are rising as earlier investments come online, with the company warning that 2027 spending will be 'significantly' higher. This could threaten Alphabet's AI-driven growth model.