Alphabet GOOG is set to release its second quarter 2025 earnings report. Here’s Morningstar’s take on what to look for in Alphabet’s earnings and stock.

Key Morningstar metrics for Alphabet

  • Fair Value Estimate: $237.00
  • Morningstar Rating: ★★★★
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium

Earnings release date

  • Wednesday, July 23, after the close of trading

What to watch for in Alphabet’s Q2 earnings

  • We are looking for commentary on generative artificial intelligence search, its monetization rates, and the health of the overall search business. We are expecting commentary on search query trends, new search experiences monetization (AI Overviews and AI Mode), and the performance of multi-modal search (such as Circle to Search). I think efforts/data by management that placates investors’ worries on Search could boost the stock’s performance.
  • We have been reading commentary on Google’s success in courting AI startups as customers, as well as OpenAI’s recent decision to begin using GCP as its cloud infrastructure. We are anticipating this strength to begin showing up in results. While near-term growth in Google Cloud may remain supply-constrained, we are expecting a pickup in the back half of 2025 as more capacity comes online. We think Google remains a top AI lab, with arguably the best model out there (Gemini 2.5 Pro), but the firm has to prove it can translate that technical leadership into commercial success, and the clearest monetization route remains Google Cloud.
  • We believe GenAI features such as auto-translation, ad campaign creation, creator tools for editing/video creation, are all going to help YouTube boost its offerings, especially Shorts, which are monetizing at the same rate as long-form videos. We are expecting YouTube to remain strong this quarter, and we expect longer-term average revenue per user to trend up as it benefits from a GenAI uplift.

Fair Value estimate for Alphabet

With its 4-star rating, we believe Alphabet’s stock is undervalued compared with our long-term fair value estimate of $237, which implies a 2025 adjusted price/earnings multiple of 26 times and an enterprise value/adjusted EBITDA multiple of 19 times. We forecast Alphabet’s top line growing at an 10% compound annual growth rate over the next five years.

Economic Moat Rating

We believe Alphabet merits a wide economic moat rating owing to the intangible assets, network effect, cost advantage, and customer switching costs that permeate a variety of its businesses.

Financial strength

We view Alphabet’s financial position as virtually unassailable. The firm closed out 2024 with cash and cash equivalents of $96 billion, more than offsetting its debt balance of $11 billion. The firm’s advertising business is a cash-generating machine, churning out tens of billions of dollars in free cash flow annually. Alongside advertising, Alphabet is making progress on diversifying its cash generation, with Google Cloud and YouTube subscription sales as additional free cash flow drivers.

Risk and Uncertainty

We assign Alphabet an Uncertainty Rating of Medium. Our rating reflects our belief that despite the near-term uncertainty around antitrust regulation and potential competition in the AI-infused search market, Alphabet is well-positioned to expand its overall business while maintaining a rock-solid balance sheet.

We believe Google’s intangible assets and network effects will likely safeguard its dominance in the search space. Further, the firm’s continued investments in AI, which Alphabet can leverage across nearly every business it operates, should be value-accretive. At the same time, however, we do think Google Search’s status as the runaway leader in search could come under pressure primarily due to the antitrust scrutiny. While we don’t see the firm’s market leadership slipping due to antitrust concerns, this issue adds uncertainty to an otherwise stable business.

GOOG bulls say

  • Alphabet’s core advertising business is deeply entrenched in advertising budgets, allowing the firm to benefit from a secular increase in digital advertising spending
  • The firm’s advertising business generates substantial cash flows that it can reinvest in growth areas such as GCP, AI-infused search, and aspirational projects such as Waymo.
  • Alphabet has a huge opportunity in the lucrative public cloud space as a key cloud vendor to enterprises looking to digitize their workloads.

GOOG bears say

  • While Alphabet is seeking to diversify its business away from search, text-based advertising remains the largest contributor to the firm’s top line creating a concentration risk.
  • Alphabet’s continued investments in new, often unproven technologies, via its Other Bets business have been a drag on cash flows.
  • Regulators around the world are keying in on Alphabet’s search dominance and could upend the search market through the imposition of deep, structural changes in the search space.

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