GOOGL Earnings: The Cheapest of the Magnificent 7

Alphabet (GOOGL) heads into its second-quarter earnings report on July 23 with something to prove. While the stock is flat year-to-date, lagging significantly behind Nvidia (NVDA), Microsoft (MSFT) and Meta Platforms (META), it is in line with the performance of Amazon (AMZN) and much better than Tesla (TSLA) and Apple (AAPL). Despite the mixed performance, Alphabet may now be one of the most attractively priced stocks in the Magnificent 7.

At just 20x forward earnings, GOOGL trades well below its 10-year median of 25.8x, offering an opportune valuation discount in a market saturated with AI-driven premiums. Yet many investors remain skeptical, with bears raising concerns about search cannibalization from AI tools like ChatGPT and Claude. While this narrative dominates headlines, the data has yet to confirm any material erosion in Alphabet's search business, though it will be a key metric to watch in Wednesday’s report.

Alphabet Earnings Breakdown

According to the latest Zacks data, Alphabet is expected to post revenues of $79.25 billion for Q2 2025, reflecting an 11.06% increase over the year-ago quarter. EPS is forecast at $2.14, representing 13.2% year-over-year growth.

Estimates have remained stable in recent weeks, suggesting analyst confidence heading into the report. GOOGL currently has a Zacks Rank #3 (Hold) rating, with current quarter earnings estimates rising by 1% in the last week, next quarter increasing by 1.85% and next years estimates dropping 1.3%.

Over the past four quarters, Alphabet has consistently exceeded earnings expectations, including a 39.11% beat last quarter. For the upcoming report, the Zacks Earnings ESP suggests a potential beat of 0.87%.

Google Search Remains a Core Engine

Search remains the company’s crown jewel and a point of investor anxiety. The rise of large language models (LLMs) has fueled speculation that traditional web search could be disrupted. So far, however, Google Search appears to be holding up well, even as competitors attempt to innovate around it. This quarter’s commentary on ad spending trends and search monetization will be closely scrutinized.

While investors are right to ask hard questions, they should also remember Alphabet’s key advantage: data. Gemini, Alphabet’s native AI model, is built on the vast ocean of the company’s proprietary and real-time internet data. This gives it a competitive edge in retrieval-augmented generation (RAG), an increasingly important aspect of commercial AI use.

GOOGL Stock’s Quiet Advantage, YouTube

If search is Alphabet’s cash cow, YouTube may be its silent growth engine. According to Nielsen data, YouTube has steadily increased its share of US TV viewing time and now surpasses players like Disney, NBCUniversal, Paramount, and even Netflix. Its rise reflects a generational shift in media consumption habits, and with its integration of Shorts and AI-powered content tools, YouTube seriously dominates the video content space.

YouTube’s ad monetization trends will be another key figure to watch. After a brief slump during the digital ad slowdown in 2023, revenue trends have rebounded, and a strong print this quarter could push investor sentiment sharply higher.

Google Cloud is a Growth Center for the Stock

 Once a drag on profitability, Google Cloud has become a meaningful contributor to Alphabet’s bottom line. In Q1 2025, Google Cloud generated $12.3 billion in revenue, marking a 28% year-over-year increase. This impressive growth has been driven by a surge in enterprise demand for AI infrastructure, model hosting, and generative AI tools.

Recent developments underscore this momentum. Notably, OpenAI despite its ties to Microsoft, struck a landmark cloud deal with Google, a move that highlights Alphabet’s growing credibility and competitiveness in AI infrastructure services.

Q1 also highlighted that Google Cloud continues to chip away at market leaders Amazon and Microsoft. The company expanded its global market share to 11%, up from 10% in Q4 2024. While Amazon Web Services (AWS) remains the dominant player, its share slipped to 30%, down one percentage point, highlighting how Microsoft Azure and Google Cloud are steadily gaining traction. Google’s momentum reflects growing enterprise demand for its AI-optimized infrastructure and broader adoption of its cloud services across industries.

Alphabet Shares are Undervalued and Underestimated

Despite flat YTD performance and bearish sentiment, Alphabet is not broken. At just 20x forward earnings, expected to grow earnings 15% annually over the next three to five years, and with major franchises like YouTube and Google Cloud gaining steam, the stock may be setting up for a strong second half.

While risks remain, particularly around competitive threats in AI and potential search cannibalization, Alphabet's scale, balance sheet strength, and breadth of monetizable assets suggest the long-term case remains intact.

With low expectations, compelling valuation, and solid earnings momentum, GOOGL might just be the most overlooked of the Magnificent 7 heading into Q2 earnings.

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

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