Alphabet Earnings Preview: All Eyes on Ads, AI, and CapEx as Q2 Report Looms

Alphabet Inc. (GOOGL) is set to report second-quarter 2025 earnings after the close on Wednesday, with investors watching closely for signs of acceleration—or fatigue—across its advertising, cloud, and AI businesses. Expectations are relatively upbeat: the Street is looking for revenue of approximately $93.3 billion, implying roughly 10.7% year-over-year growth, and EPS around $1.90, up from $1.44 a year ago. While bullish sentiment is growing around AI monetization and cloud momentum, softness in advertising growth and rising CapEx-related costs could temper enthusiasm.

WATCH: Alphabet’s Future Hinges on This One Call

Key Metrics and Analyst Estimates

EPS and revenue estimates suggest a continuation of Alphabet’s solid, if unspectacular, trajectory. Analysts expect:

• EPS: $1.90 (vs. $1.44 YoY)
• Revenue: $93.3B (up ~10.7% YoY)
• Google Cloud Revenue: ~$12.9B (up ~25-28% YoY)
• YouTube Ad Revenue: ~$9.2B (up ~10% YoY)

The Street will be listening for updated CapEx guidance after management reaffirmed a $75B full-year target last quarter, and will also parse commentary on AI monetization, macro advertising trends, and regulatory risks.

Advertising Business: Slower Growth, Bigger Questions

Advertising still drives the bulk of Alphabet’s revenue—approximately 74% last quarter. Yet growth has slowed meaningfully. In Q1, advertising revenue rose 10% YoY to $77.3 billion, with Search posting 9.8% growth and YouTube ads up 10%. That marked the first single-digit growth rate for Search ads since Q2 2023.

CFRA analyst Angelo Zino explained:

“We do expect Alphabet's revenue to continue to decelerate from levels we've seen last year. I think we're looking for a growth rate of about 10.6, 10.8%... It's really going to come from their more ad-supported businesses.”

Zino also noted competitive risks from alternative platforms:

“As you get new ways to search and new platforms for advertisers, you're going to see Alphabet lose some share... They’ll still be the dominant player, but growth will likely trail the broader market.”

CapEx and Cloud: Hyperscaler Race Heats Up

Alphabet’s CapEx strategy remains a critical piece of the investment narrative. The company is on pace to spend $75 billion this year, with a sizable portion earmarked for AI infrastructure and Google Cloud. That figure equates to roughly 19% of full-year revenue—substantially below Meta’s 36% but still historically aggressive for Alphabet.

Cloud now represents about 14% of Alphabet’s total revenue and continues to deliver margin expansion. In Q1, Google Cloud revenue rose 28% YoY to $12.3 billion, with operating margin climbing to 17.8% (from 9.4% YoY). Analysts expect similar performance in Q2, though investors will be watching for any signs of slowing as capacity deployment timing remains a variable.

Said Zino:

“Cloud is becoming a huge part of the business... we think [it] will continue to grow at about 25 to 30%... driven by AI demand and broader enterprise adoption. They’re also seeing growth from Workspace and cybersecurity, especially with the Wiz acquisition expected to close next year.”

Importantly, Alphabet just inked a multi-region cloud deal with OpenAI, signaling strengthening demand for its infrastructure from unexpected partners.

AI: Gemini, Overviews, and the Battle with ChatGPT

Alphabet has invested heavily in its Gemini models and AI integrations across search, YouTube, and Workspace. Gemini 2.5 was introduced in Q1 and, according to Zino, shows strong capabilities in reasoning and coding. The broader Gemini ecosystem now reaches over 15 platforms with half a billion+ users.

YouTube is also becoming a key AI use case, with tools enhancing shopping, content discovery, and ad targeting. AI Overviews—Google’s GenAI-generated search answers—expanded to 140 countries in Q1 and now support over 15 languages.

While early monetization is modest, analysts see long-term potential. Citizens recently estimated AI Overviews could reach 4 billion monthly users by Q3 and become a tailwind for commercial queries.

Zino added:

“You’re seeing Alphabet roll AI across its whole ecosystem. That’s a big competitive advantage... AI is not a needle mover today, but it’s central to their long-term growth.”

Regulatory Overhang and Valuation

Alphabet’s legal exposure remains a key overhang. The ongoing DOJ case over its search monopoly could result in remedies ranging from data sharing to changes in default settings. Zino downplayed the breakup risk:

“We see a very low probability of a breakup—our Washington team puts it at about 10%.”

Even with legal uncertainties and slowing ad growth, Alphabet trades at just under 16x forward earnings on a net cash basis, making it the cheapest of the Magnificent 7.

Zino concluded:

“From a valuation perspective, this is the name to own among the Mag 7 if you're more value-centric. It's trading at the lowest multiple with meaningful upside if legal concerns ease.”

Q1 Recap: A Strong Baseline

For comparison, Alphabet’s Q1 results showed:

• Revenue: $90.2B (+12% YoY)
• EPS: $1.89
• Google Cloud revenue: $12.3B (+28% YoY)
• Search revenue: $50.7B (+9.8% YoY)
• YouTube ad revenue: $8.9B (+10% YoY)
• CapEx: 19.1% of revenue
• Free cash flow: $19B
• Cash: $95B

Growth in subscriptions (270M+), Waymo ridership (250K+ weekly), and AI user adoption (Gemini, AI Studio usage +200%) provide meaningful comp for Q2.

What to Watch on the Call

Investors should focus on:

• Search and YouTube growth trends amid macro ad pressures
• Updates on Gemini, AI Overviews, and their monetization
• Cloud revenue and margin expansion
• CapEx trajectory vs. $75B guide
• Comments on Meta’s AI talent poaching and infrastructure arms race
• Regulatory developments and risk framing around the DOJ case

Final Take

Alphabet heads into Q2 earnings with tempered but optimistic expectations. Slowing ad growth is a concern, but cloud resilience, expanding AI use cases, and a discounted valuation give bulls reasons to hold firm. With macro ad spending in flux and CapEx nearing peak levels, execution in AI and cloud will be pivotal in determining whether the stock finally earns the multiple upgrade it’s long been waiting for.