Earnings Preview | Cloud Computing and Advertising Dual Engines Powering Up, Bullish Sentiment Gathers Ahead of Alphabet's Earnings Report

According to the Zhitong Finance APP, Google's parent company Alphabet (GOOGL.US) plans to announce its second-quarter earnings after the U.S. stock market closes on Wednesday, Eastern Time. Driven by optimistic expectations in cloud computing and digital advertising, Wall Street analysts generally hold a bullish stance, but they are also paying attention to the crucial antitrust ruling expected next month — a ruling that could force Google to sell its Chrome browser business, as well as the impact of AI search leaders like OpenAI and Perplexity AI on Google Search engine user engagement, actual traffic, market share, and the effects on Google's digital advertising business.

Among the 19 analysts covering Google's parent company Alphabet tracked by Visible Alpha, 15 have given the stock a "Buy" or equivalent rating, while 4 have given it a "Hold" rating. The average target price is close to $200, indicating a potential upside of about 10% from last week's closing price. However, Alphabet's stock price has fallen about 2% year-to-date in 2025, hovering around $185, significantly underperforming the broader U.S. stock market benchmark — the S&P 500 index, which has risen about 7% this year.

The analyst team from Wall Street's Jefferies maintained a 12-month target price of $210 for Google last Friday, believing that Google's cloud computing segment (Google Cloud) "benefits from strong enterprise-level Gemini AI application software demand and robust cloud AI computing resource demand from major tech companies."

Amid the AI boom, Wall Street analysts generally expect Google's cloud computing revenue to grow significantly year-over-year by 26%, reaching $13.11 billion.

The analyst team from Wedbush Securities stated last Thursday that revenue from the digital advertising business will also become a market focus, as the rise of generative AI search and AI chatbots led by OpenAI poses a threat to Google's traditional search engine business.

The market expects Google's "Search and Other" business segment revenue to grow approximately 9% year-over-year, reaching about $52.8 billion.

Analysts expect Google's parent company Alphabet to report total revenue of approximately $93.86 billion for the second quarter, a year-over-year increase of about 11%; net profit of approximately $26.57 billion, or earnings per share of $2.17, compared to a net profit of $23.62 billion and earnings per share of $1.89 in the same period last year.

Crucial Antitrust Ruling Approaches

The analyst team from Cantor Fitzgerald pointed out earlier this week that a U.S. federal judge is expected to rule next month on the remedies Google must take after being found to maintain an illegal search monopoly a year ago. The U.S. Department of Justice argues that Google should be forced to sell its Chrome browser business.

Cantor Fitzgerald analysts maintain a "Neutral" rating on Google's parent company Alphabet and state that they will adhere to this cautious stance "until we receive a clear outcome." However, the institution raised its target price from $171 to $196, primarily due to Google's Gemini large model and its competitive position in the generative AI field.

The analyst team at Bank of America raised Google's target price from $200 to $210. The analysts stated last Friday that the prospects of antitrust rulings are "questions everyone wants to ask, but are ones that neither Google nor the U.S. judicial system can currently answer."

Analysts from UBS recently stated that Google has the largest revenue scale and substantial profit margins in the digital advertising sector, but the uncertainty in growth prospects has led UBS to remain cautious: especially as the search engine business faces dual challenges from regulation and the "search paradigm" shift led by OpenAI, Perplexity AI, Anthropic, and xAI, which may gradually intensify competition in the search industry.

UBS noted that although Google is actively transforming (for example, developing AI-driven new search experiences, focusing on YouTube Shorts and cloud services), they prefer to wait and see if these initiatives can offset potential advertising loss risks. In terms of investment allocation, UBS currently maintains a "neutral" rating on Alphabet and will consider a more aggressive investment stance only after clearer positive catalysts emerge, but UBS slightly raised its 12-month target price for Alphabet to $192 (previously $186).

Valuation pressure is much lower compared to the other six giants, and a performance that meets expectations is likely to drive a significant rise in stock price.

Google, under Alphabet, is facing regulatory pressure from antitrust agencies in Europe and the U.S., as well as the impact of generative AI on its long-standing core business—search engine operations. However, with its unique vast database and increasingly powerful Gemini AI large model, along with the gradual integration of AI into its search engine and digital advertising business, Wall Street analysts remain optimistic about its resurgence.

Jeff McClean, CEO of Solidarity Wealth, stated that he believes any missteps in Google's artificial intelligence strategy will ultimately be corrected. "With its vast data resources and the Gemini AI application platform, along with the gradual adoption of AI summaries in search results, Alphabet is still expected to regain growth momentum."

Moreover, Google's relatively low valuation means that performance meeting expectations is likely to lead to a strong rise in stock price. In contrast, tech giants like NVIDIA, Microsoft, Tesla, and Meta have historically high valuations, which means they need to significantly exceed expectations to continue driving their stock prices to new highs.

Given that the valuations of NVIDIA, Microsoft, and Meta have become so expensive, expectations for AI computing power investments, performance, and outlook are particularly important. Statistics show that six of the seven tech giants have price-to-earnings ratios far exceeding 25x, while the average price-to-earnings ratio of the S&P 500 index is only 22.35x; Alphabet, Google's parent company, is the only exception with a price-to-earnings ratio below that of the S&P 500 index Senior analyst Jamie Cox from Harris Financial pointed out that for Nvidia, Microsoft, and Meta to continue rising under such extreme valuations, they need very strong earnings performance, which he is not certain about