Will Alphabet's Stock Keep Rebounding as Q2 Earnings Approach?

Following a tremulous start to the year, Alphabet GOOGL stock has helped lead the broader market’s historic rebound. Rebounding and soaring over +20% in the last three months, Alphabet stock is now virtually flat in 2025 with the tech giant’s much-anticipated Q2 results approaching on Wednesday, July 23.

Notably, outside of tariff headwinds, investors have been concerned about Alphabet’s Google Cloud services losing market share to Microsoft’s MSFT Azure and Amazon’s AMZN AWS. Signaling potential growth challenges, Alphabet announced job cuts in its cloud division, which rattled its stock in February, as the company’s core search business has also faced rising competition from AI-powered platforms like ChatGPT.

This makes it a very worthy topic of whether it’s time to buy, hold, or sell Alphabet stock ahead of its Q2 report.

Alphabet’s Q2 Expectations

Although Alphabet’s cloud segment revenue will be under a scope, Q2 sales are expected to be up 11% to $79.25 billion compared to $71.36 billion in the prior year quarter. Furthermore, Q2 EPS expectations of $2.14 would reflect a 13% increase from earnings of $1.89 per share a year ago.

It’s also noteworthy that the internet-services leader has exceeded top and bottom-line expectations for nine consecutive quarters, with an average sales and earnings surprise of 1.24% and 14.64% over the last four quarters, respectively.

Alphabet’s CapEx Spend & Balance Sheet  

Amidst the artificial intelligence boom, Wall Street will also be paying close attention to Alphabet’s capital spending. To that point, investors have voiced concerns about Alphabet's plan to spend $75 billion on AI infrastructure this year, up from $52.4 billion in 2024.  

That said, Alphabet's focus on revamping and innovating its technical infrastructure could help defend its core search business with plans to boost its servers, data centers, and networking capacity. This is also aimed at supporting ambitions across its AI-powered virtual assistant model Gemini and Google Cloud, with the latter being amplified by Alphabet’s $32 billion acquisition of cybersecurity firm Wiz.   

Completed in March, Wiz is Alphabet’s largest acquisition and should strengthen its position in multicloud security and AI-era threat protection. Despite the increased AI spend, Alphabet still had more than $95 billion in cash & equivalents at the end of Q1, and $475.37 billion in total assets, which was nicely above its total liabilities of $130.1 billion.

Monitoring Alphabet’s Valuation

Appealing to long-term investors is that at under $200 a share, Alphabet stock still has the cheapest P/E valuation amongst its “Magnificent 7” big tech peers. Trading at 19.3X forward earnings, GOOGL offers a nice discount to the broader market, as the benchmark S&P 500 is currently at 24.3X, with the next cheapest valued company among the Mag 7 being Meta Platforms META at 27.6X.

In terms of price-to-sales, GOOGL checks in as the second most affordable Mag 7 stock with a forward P/S ratio of 6.8X. While this trail’s Amazon’s 3.4X forward sales multiple, most of the other Mag 7 players trade at more than 10X, with GOOGL being closer to the S&P 500’s 5.4X.   

Bottom Line

Following an extensive rebound in the last three months, Alphabet stock lands a Zacks Rank #3 (Hold) at the moment. On pace for double-digit top and bottom-line growth in fiscal 2025, Alphabet stock should remain a viable long-term investment. Still, the company’s Q2 report will be crucial in regard to hopefully addressing future growth and capital spending concerns, even with a strong balance sheet and such an enticing valuation compared to its Mag 7 peers. 

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This article originally published on Zacks Investment Research (zacks.com).

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