Google I/O Preview: Is Gemini 4.0 Coming? But That's Not the Most Important Thing

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The biggest suspense at Google I/O is not whether Gemini 4.0 will debut, but whether Google can prove that Gemini is converting model capabilities into revenue growth for search, ads, shopping, and cloud businesses.

Google has two key events in the coming week: Google I/O on May 19 focuses on products and models, while Google Marketing Live on May 21 directly targets ads and commercialization. The market's attention is shifting from "what model is released" to "how AI capabilities enter daily business processes."

According to Wind Trading Desk, in a May 12 research report, Citigroup’s Ronald Josey pointed out that the Gemini model remains cutting-edge, AI tools are driving global query growth, UCP is transforming business, and Google Cloud’s backlog nearly doubled to $462 billion quarter-on-quarter. Citigroup maintains Alphabet’s “Buy” rating and a $447 target price.

This means any model update at I/O is merely the first level of signal. What truly affects valuation is whether AI search can expand commercial queries, whether AI Max can become the new default tool for ad budgets, whether agentic shopping can connect transactional chains, and whether the cloud business can continue to benefit from Gemini, TPU, and enterprise AI demand.

Gemini 4.0 is possible, but not the only focus

From the release rhythm, Gemini 4.0 is not impossible. Over the past two years, Google has successively launched Gemini 1.0 Pro, 1.5 Pro, 2.0 Flash, 2.5 Pro, 3 Pro, and 3.1 Pro, with Gemini 3.1 Pro released in February 2026. Based on a cycle of about 3 to 4 months, it’s more likely to see Gemini 3.2 or 3.5 at I/O, with Gemini 4.0 being possible, but relatively less probable.

For investors, the model number itself is not decisive. More important is whether Gemini’s ecosystem continues to expand, including Genie 3, Gemma 4, Gemini Robotics ER-1.6, and Gemini’s pathway into more core services after Gmail and Maps.

Google may also update Gemini Health, Android XR smart glasses, and travel scenario integration around services like Google Canvas. If these products form a unified entrance, it will strengthen Gemini’s role as the operating layer, not just a chat or generative tool.

As of the end of Q1 2026, Google product suite subscription users reached 350 million. The next observation is whether the expansion of Gemini’s features will drive subscription revenue or serve more ad monetization. If AI search improves experience but weakens ad display, market reaction may be limited; if it enables more queries with commercial intent, growth in the ad business will be reassessed.

The key to AI search is turning queries into actionable intent

Search remains the core of Google's valuation. The most noteworthy change at I/O is how AI-O, AI-M, and Gemini search experience merge, and Chrome’s position in this framework.

Google management mentioned in the Q1 earnings call that longer and more complex queries from AI-O, AI-M, and Gemini provide more intent-based data. This directly affects ad value. Users no longer input just short keywords, but budgets, scenarios, preferences, and constraints, giving Google more granular demand signals.

Traditionally, about 20% of queries have commercial attributes. If AI search allows more queries to have identifiable, matchable, and actionable commercial intent, the ceiling for search ads may rise. For advertisers, the question is not whether AI features are advanced, but whether more conversions can be delivered at the same CPA (cost per acquisition).

In Q1, Google query volume hit a record high. As of April 2026, Google’s global search share is 90.0%, up 10 basis points quarter-on-quarter. Chrome’s global share is 68.0%, up 130 basis points quarter-on-quarter. If these entrances continue to grow, the commercial foundation for AI search will be more solid.

Google Marketing Live will test AI ad monetization

If Google I/O answers "where can AI capabilities go," then Google Marketing Live answers "how does AI make money."

Currently, AI-driven ad campaigns account for more than 30% of search ad spending, covering AI Max, P-Max, Demand Generation, and other tools. Advertisers can use prompts to create and modify ad campaigns, Ads Advisor offers agentic assistance, Smart Bidding Exploration brings about 27% more conversions in search campaigns, Campaign Total Budgets reduce manual budget adjustments by about 66%, and Journey Aware Bidding is still in testing.

AI Max will be the most critical observation point at GML. The tool completed beta testing in April 2026 and plans to fully replace Dynamic Search Ads by September 2026. Early results show that the full AI Max suite brings 14% more conversions; broader keyword matching yields 7% more conversions at similar CPA.

Google is also advancing AI Max for Shopping, Search Campaigns for Travel, and other vertical optimizations. If these tools become the new default for search budget allocation, the impact of AI on ad business will shift from "feature upgrades" to "system overhaul."

Agentic Shopping aims at the transaction loop

Google’s shopping business is evolving from product discovery to deeper integration in the transaction chain. UCP, Direct Offers, Agentic Checkout, and agentic shopping experiences in Google Shopping and Chrome will be joint observation points at I/O and GML.

This change isn’t simply about adding shopping buttons, but reducing friction between search, comparison, selection, and checkout. Recently, Google expanded its partners to several major e-commerce companies, Meta, Microsoft, Stripe, and later Klarna and Affirm. If payment, installment, checkout, and ad delivery can be linked, Google Shopping's commercial role will become heavier.

Chrome’s importance is rising as well. As of April 2026, Chrome’s global share is 68.0%, and US share is 50.0%. If agentic shopping, personalized recommendations, and checkout are embedded in Chrome, Google will gain a new commercial entrance beyond search.

This is also one reason investors are watching I/O. If Gemini can push “searching for answers” to “executing actions,” Google’s pricing power in shopping and ads may increase.

Cloud business and TPU are increasing Alphabet’s valuation weight

Alphabet’s past valuation core was search ads, but Google Cloud is becoming a more important variable.

In Q1, Google Cloud revenue was $20.028 billion, up 63.4% YoY; backlog reached $462.3 billion, nearly doubled QoQ, up 400.3% YoY. Token consumption also grew 60% QoQ. These metrics indicate enterprise AI demand is entering cloud business orders and usage.

Projections show Google Cloud revenue may grow from $58.705 billion in 2025 to $94.529 billion in 2026, $146.521 billion in 2027, and $209.525 billion in 2028. Growth rates are expected to be 61.0% in 2026, 55.0% in 2027, and 43.0% in 2028. Cloud’s share of total revenue is projected to rise from 14.6% in 2025 to 19.5% in 2026, and reach 30.6% in 2028.

Profit margins are also improving. Google Cloud’s 2025 operating margin is 23.7%, expected to climb to 33.8% in 2026, 35.0% in 2027, and 35.5% in 2028. This means the cloud business is no longer just a high-growth segment, but is starting to support Alphabet’s overall profit margin.

At I/O, Gemini Code Assist, "vibe coding" tools in Google AI Studio, and TPU sales strategies are also worth watching. TPU-related revenue is expected to begin contributing in the second half of 2026 and expand significantly in 2027. To the market, this signifies Google Cloud is forming a more complete chain among models, chips, infrastructure, and enterprise AI tools.

YouTube and AI creative tools offer another growth line

YouTube Brandcast on May 13 is a precursor to I/O and GML. Observing points include YouTube engagement, Shorts growth, Demand Gen tool updates, and YouTube Premium/Music subscription adoption after price increases in April 2026.

AI is also reshaping ad creativity. Gemini Omni is now in end-to-end creative orchestration, potentially integrating generation and editing into ad workflows. Lyria 3 has generated over 150 million songs. Demand Gen ads with video enhancement deliver 16% higher conversions.

The business value of these tools is lowering ad production and iteration costs. Previously, advertisers handled material, delivery, budget, and bidding separately; now Google is attempting to place all these steps in one automated system. As long as conversion rate improvement continues, advertisers will have stronger incentives to migrate to AI delivery processes.

Valuation bet: Can AI support a higher multiple

Citi’s $447 target price is based on about 30x 2027 GAAP EPS of $14.75. Calculated with the May 12 closing price of $387.35, expected share price return is 15.4%, plus a 0.2% dividend yield, for a total expected return of 15.6%.

Alphabet is currently at about 26x 2027 GAAP EPS. The 30x multiple is higher than the market and higher than Google’s own historical valuation range. This premium works if two conditions are met: search queries continue to grow, AI does not erode the ad base; Google Cloud continues to accelerate under Gemini demand, TPU demand, and enterprise AI adoption.

Revenue models show Alphabet’s total revenue is expected to rise from $402.836 billion in 2025 to $484.620 billion in 2026, up 20.3% YoY; $579.560 billion in 2027, up 19.6% YoY; $684.904 billion in 2028, up 18.2% YoY. Google Search and Other revenue is expected to reach $260.17 billion in 2026, up 15.9% YoY; total ad revenue is expected to hit $333.057 billion in 2026, up 13.0% YoY.

Risks are equally clear. Ad budgets may be held back by economic and consumer spending, AI competition may impact Google more than expected, internet ad spending may slow faster, and antitrust, data, and privacy regulation may suppress valuation.

Therefore, whether Gemini 4.0 is released will attract attention, but it’s not the only answer. The true test for the next two launch events is whether Google’s demonstrated AI capabilities can become growth engines for search, ads, shopping, and cloud business.

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The above content is from Wind Trading Desk.

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