Alphabet's Q4 Revenue Consensus Rises with Margin Uptick, Yet AI Capex Skepticism Persists

What happened

Visible Alpha consensus has lifted Alphabet's Q4 2025 revenue expectation to $111.4 billion from $108.8 billion, signaling improved top-line momentum ahead of earnings. This aligns with the DeepValue report's note of Google Cloud's 34% growth and 23.7% margin in Q3 2025, supporting a narrative of steady operational execution. However, the report highlights a shift in market sentiment from celebrating AI wins to scrutinizing Alphabet's $90B+ annual capex ramp, which risks crushing margins if cloud growth decelerates. Regulatory pressures from antitrust cases and AI price competition from low-cost providers like DeepSeek add further headwinds, tempering optimism. Ultimately, while the earnings preview points to resilient performance, it does not resolve the core overhang of whether AI infrastructure spending will deliver adequate returns.

Implication

The increased revenue consensus and better margin trend indicate Alphabet's core ads and cloud businesses are holding up, supporting the base scenario of 11-12% annual growth. This could ease near-term concerns about depreciation from high capex, but the valuation at ~33x EPS already discounts such performance. The DeepValue report's WAIT rating remains prudent as AI spending scrutiny, regulatory remedies, and competitive pricing pressures are unresolved. Upcoming earnings should be monitored for 2026 capex guidance and cloud backlog conversion rates to assess AI ROI. Only a drawdown toward $280-300 or sustained cloud growth above 35% with expanding margins would improve the risk-reward profile.

Thesis delta

The new consensus data provides incremental support for Alphabet's near-term financial health, slightly bolstering the bull case if margin improvements hold. However, it does not materially shift the thesis because the elevated valuation, AI capex overhang, and regulatory risks remain unchanged, requiring clearer evidence of cloud monetization. Thus, the recommendation stays WAIT, with a need for either price weakness or demonstrable AI ROI to justify a more aggressive stance.