Google's profitability growth outpaces AI infrastructure spending increases, suggesting improving capex-to-revenue conversion efficiency.

Alphabet's AI spending has surged alongside its sales and profits. Earnings will reveal whether that unlikely combination can hold.

So far, Alphabet has made the balancing act look almost easy. Its operating margin reached 36.1% in the first quarter, its highest level in five years. Revenue grew 22%, while operating income jumped 30%.

Google Cloud revenue surged 63% last quarter to more than $20 billion, while Search revenue rose 19%. Cloud operating income tripled, giving Alphabet a rapidly expanding profit engine alongside its advertising business.

Alphabet spent $35.7 billion last quarter on servers, data centers, and other infrastructure and equipment. Wall Street expects quarterly capital expenditures to approach $44 billion in the latest report, while the company plans to spend as much as $190 billion for the full year. It has already warned that 2027 spending will be "significantly" higher.

The immediate cash outlay delays its impact on profits. Once new servers and data centers enter service, Alphabet gradually records their cost through depreciation, generally spreading the cost of servers and network equipment across six years. This means today's spending can weigh on profits well into the future.

That delayed bill is already growing. Alphabet said depreciation would accelerate this year as earlier investments entered service, adding to energy and other data center costs.

Wall Street expects Alphabet's operating margin to ease to 34.7% this quarter as spending approaches $44 billion. Holding margins near 35% while sales keep growing around 20% would show Alphabet is still outrunning its AI bill. A much weaker margin as spending climbs would show the bill is catching up.