ii view: Google firm Alphabet tests investor nerves

Google employees during the annual Pride parade in June in Toronto, Canada. Photo: Anatoliy Cherkasov/Informa Plus Photo Agency/LightRocket via Getty Images.

Second-quarter results to 30 June

• Revenue up 24% to $119.8 billion (£90 billion)
• Earnings up 294% to $9.11 per share

Guidance:

• Now expects capital expenditure of $195-205 billion in 2026, up from a previous estimate of $180-190 billion 

Chief Executive Sundar Pichai said:

“Our AI investments are redefining what’s possible across every part of our business.

“Q2 was an amazing quarter. It’s great to see wide adoption of Gemini Enterprise, with nearly 90% of the Fortune 100 using it.”

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ii round-up:

Google owner Alphabet Inc Class A (NASDAQ:GOOGL) reported revenue that beat Wall Street expectations driven by exceptional growth at the cloud data business hosting increasing quantities of AI related software for businesses.

A near doubling in cloud data sales from a year ago to $24.8 billion helped push overall revenue up 24% to $119.8 billion (£90 billion). Analysts had forecast sales of $117 billion. Such growth and required data centre capacity now see management raise expected capital expenditure in 2026 to $195-205 billion, up from a previous $180-190 billion estimate.

Shares in Nasdaq company Alphabet fell 7% in post results US trading having come into these latest numbers up by around a tenth so far in 2026. That's similar to fellow data centre provider Amazon.com Inc (NASDAQ:AMZN). The Nasdaq 100 index has risen by close to 15%.

Cloud related operating profits soared to $8.8 billion from $2.83 billion in Q2 last year. Group-wide headline earnings rose 294% to $9.11 per share, although adjusted earnings of $2.85 per share missed analyst estimates of $2.89.

Alphabet operates across the three divisions of Google Cloud, Google Services which includes its core search engine business, as well as Other Bets that houses the Waymo self-driving business.

Google Service revenues, including YouTube, climbed 15% to $94.5 billion. Divisional operating profit of $39.5 billion was up from $33 billion a year ago.

Losses of $1.8 billion at Other Bets deteriorated from a loss of $1.25 billion in Q2 2025.

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results but lowered its target price to $400 per share from $415.

ii view:

Started in 1998 as Google before changing its name to Alphabet in 2015, the group generated revenues of $403 billion in 2025, up 15% from 2024. Google Services, combining businesses such as advertising and YouTube subscription fees, generated the bulk of 2025 sales at 85%. That was followed by the Cloud data business at 14.6% and Other Bets a balance of less than 1%.  

Geographically, North America remained its biggest market in 2025 at almost half of all sales. That was followed by Europe, the Middle East and Africa (EMEA) at around 29%, Asia-Pacific 17%, and Latin America the balance.  

For investors, expected investment spending of up to $205 billion this year on items such as data centres and AI may not generate returns which investors see as sufficient. Google’s dominance in the search engine area is now arguably being tested via increased competition from AI enhanced providers such as ChatGPT and Microsoft Corp (NASDAQ:MSFT)'s Copilot. A price-to-net asset value comfortably above the three-year average may suggest the shares are not obviously cheap, while supply chain constraints in relation to building new data centres have previously been flagged.

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More favourably, dominance in the existing non-AI search sector likely leaves Alphabet well placed to pick up the running in the new AI enhanced world. Diversity of both business type and geographical region exists. Ownership of the mobile phone Android operating system leaves it less depend than say Meta Platforms Inc Class A (NASDAQ:META) on the metrics set by Apple Inc (NASDAQ:AAPL) for advertising privacy, while the company has introduced dividend payments alongside share buybacks, although the yield is just 0.3%.

In all, and while a battle for AI dominance now raises concerns about massive spending, this well managed and firmly established tech giant looks to remain worthy of its place in many investor portfolios.

Positives

• Alphabet dominates the digital advertising market
• Growing Cloud divisional sales

Negatives

• Government concerns for competition
• Subject to currency movements

The average rating of stock market analysts:

Buy