Alphabet Q2 Earnings Preview: AI search monetisation and cloud growth in focus

Alphabet is set to report second quarter (Q2) 2025 earnings after the US market close on Wednesday 23 July, with investors focused on the company’s ability to translate its artificial intelligence (AI) investments into top-line growth. With its Gemini and AI Overview features gaining traction across Google Search and YouTube, the results will provide fresh insight into how successfully Alphabet is monetising generative AI technologies while managing mounting infrastructure costs.

Alphabet expected to post steady revenue and earnings growth

Wall Street expects Alphabet to report adjusted earnings per share of $2.40, up 23% year-on-year, on revenue of $79.6 billion, representing a 6% drop year-on-year. Net income is projected to come in at $32.8 billion. Analysts are also expecting free cash flow of around $17.1 billion, despite rising capital expenditures associated with AI infrastructure buildouts. The company has a strong track record of outperforming expectations, having beaten consensus earnings in eight consecutive quarters.

AI-driven search revenue seen as key to Q2 results

A major focus this quarter will be Alphabet’s core advertising business, particularly how new AI features are impacting Google Search monetisation. The rollout of AI Overview and AI Mode—now available to over 1.5 billion users globally—is expected to support search advertising revenue growth, with estimates suggesting an uplift of around 9%. These features are designed to enhance the user experience while increasing engagement and click-through rates. YouTube may also contribute to top-line performance, with ad revenues expected to benefit from new AI tools for creators and advertisers.

Google Cloud stabilisation and AI demand support growth

Alphabet’s Google Cloud division is expected to see renewed momentum, with consensus forecasting around 27% growth in the second quarter. This improvement is largely attributed to accelerating enterprise demand for AI-driven workloads, including training and deployment of large language models. While pricing competition and cautious corporate spending may continue to weigh on margins, any upside surprise in cloud revenue would likely be welcomed by investors. Continued expansion of the Gemini AI suite is also viewed as a key differentiator as Alphabet steps up competition with Microsoft Azure and Amazon Web Services.

Higher capex and margin pressures remain a risk

Despite improving revenue trends, Alphabet’s cost base continues to rise. The company’s operating margin is expected to come under modest pressure in Q2 due to increased spending on AI talent, infrastructure, and data centre capacity. Capital expenditures are currently tracking at an annualised pace of $75 billion, and it’s expected further AI investments will be announced with this quarter’s results. These investments, while aimed at supporting long-term growth, could weigh on margins and free cash flow in the near term as depreciation and staffing costs climb.

Valuation remains supported by strong analyst sentiment

Alphabet shares have underperformed most other Magnificent 7 stocks, but sentiment among analysts remains constructive. According to market data, 83% of analysts rate the stock a Buy, with an average 12-month target price of 205.05, implying around 8% upside from the current level of 190.10. The options market is pricing an implied move of 6.2% in either direction around earnings.

Analyst consensus price target is around the record highs the stock recorded at the beginning of the year, before US trade policy uncertainty undermined economic activity and market sentiment. Alphabet shares are in a short-term uptrend and nearing a key level of technical resistance around $191 per share. Any pull back in Alphabet’s share price, perhaps driven by a negative earnings surprise, could bring a short-term support level at roughly $180 into focus.


(Source: Trading View)
(Past performance is not a reliable indicator of future results)