Should You Buy, Sell or Hold Alphabet Stock Before Q1 Earnings?

Alphabet GOOGL is set to report first-quarter 2025 results on April 24. 

For first-quarter 2025, the Zacks Consensus Estimate for earnings is pegged at $2.01 per share, down by a penny over the past 30 days and indicates 6.35% year-over-year growth.

The consensus mark for fourth-quarter revenues is pegged at $75.53 billion, indicating growth of 111.75% from the year-ago quarter’s reported figure.

Alphabet has an impressive earnings surprise history. GOOGL’s earnings outpaced the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 11.57%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
 

Alphabet Inc. Price and Consensus

Alphabet Inc. price-consensus-chart | Alphabet Inc. Quote

Let’s see how things have shaped up for the upcoming announcement:

Factors to Note for GOOGL’s Q1 Results

Alphabet’s to-be-reported quarterly results are expected to benefit from solid momentum in search and cloud businesses. The search giant’s expanding Generative AI (Gen AI) capabilities is noteworthy. Alphabet has been cashing in on the increasing demand for Large Language Models (LLMs) with Gemini. Vertex usage increased 20 times in 2024, with strong developer adoption of Gemini Flash, Gemini 2.0, Imagen 3 and Veo, a trend is expected to have continued in the to-be-reported quarter.

The integration of Gen AI technology into the search engine has been benefiting Google Search. LLMs, coupled with multi-search and visual exploration features, are continuously improving the search results. AI-powered Circle to Search is now available on more than 150 million Android devices, with people using it to shop, translate text, and learn more about the world around them. Circle to Search is driving additional Search and is gaining popularity among younger users. 

Alphabet has been rapidly growing in the booming cloud computing market. Google Cloud has solidified its position as the third-largest provider in the highly competitive cloud infrastructure market against Amazon’s AMZN cloud arm, Amazon Web Services, and Microsoft’s MSFT Azure. The solid adoption of the Google Cloud Platform and Google Workspace is expected to have driven growth in the Google Cloud segment. 

However, GOOGL is suffering from a lack of capacity, and until new capacity comes online in 2025, cloud revenues are expected to see increased variability. This is expected to have hurt Alphabet’s Google Cloud revenues in the to-be-reported quarter.

GOOGL Shares Lag Sector, Industry

Alphabet’s shares have declined 22.1% year to date, outperforming the Zacks Internet Services industry and the Zacks Computer & Technology sector. Over the same timeframe, the sector and industry have dropped 18.6% and 17.2%, respectively.

GOOGL Stock’s Performance

GOOGL shares are overvalued, as suggested by Value Score C. 

Currently, GOOGL is trading at a premium, with a forward 12-month Price/Sales of 5.27X compared with the industry’s 4.47X.

Price/Sales Ratio (F12M)

Technically, GOOGL shares are displaying a bearish trend as they trade below the 50-day and 200-day moving averages.

GOOGL Trades Below 50-day & 200-day SMAs

Will AI & Wiz Drive GOOGL’s Prospects?

Alphabet’s initiatives to deploy AI and infuse AI in Search are expected to drive top-line growth. The pending GOOGL-Wiz combination will offer security offerings that are supported on multi-cloud and are expected to tackle threats emerging from the advancement of AI, prevent breaches and help enterprises respond to breaches more efficiently. Wiz has a stellar clientele with its cloud security platform currently used by Amazon, Microsoft and Oracle ORCL. 

The addition of Wiz to Google Cloud will boost competitive prowess against the likes of Amazon Web Services and Microsoft Azure in the cloud computing space. Per Statista, which cited Synergy Research Group data, Amazon’s share in the worldwide cloud infrastructure market amounted to 30% in the fourth quarter of 2024, ahead of Microsoft’s Azure platform at 21% and Google Cloud at 12%.

GOOGL has expanded its collaboration with Oracle, announcing an industry-first partner program and the upcoming availability of Oracle Base Database Service on Oracle Database running on Google Cloud. The service now supports Oracle Exadata X11M and offers Oracle Interconnect for U.S. Government Cloud customers. To meet rising customer demand, Oracle and Alphabet plan to expand their availability to 11 new regions over the next 12 months.

GOOGL Stock: Buy, Sell or Hold Ahead of Q1?

Alphabet’s growing GenAI capabilities present a potential catalyst for future growth. Its dominant position in the search engine market is a strong growth driver. However, a stretched valuation and stiff competition in the cloud space make GOOGL shares risky for investors.

Alphabet currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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