Alphabet Q1 Earnings Preview: Ad Resilience, Cloud Momentum, and AI CapEx in the Spotlight Amid Tariff and Antitrust Headwinds

Alphabet (GOOGL, GOOG) is set to report first-quarter 2025 earnings after the market closes on Thursday, and expectations are running high. Investors will be focused on several key elements: the performance of Google Cloud Platform (GCP), updates to capital expenditures (CapEx) that could affect the broader AI ecosystem, and commentary around the recent antitrust rulings, particularly in the ad tech and search verticals. In addition, with shares trying to reclaim technical ground above the $142-$151 range and down over 20% year-to-date, the earnings call may act as a referendum on whether Alphabet's long-term fundamentals can overcome growing macro and regulatory risks.

Analysts expect alphabet to post Q1 revenue of $89.2 billion, up 11% year-over-year, and net income of $24.71 billion, or $2.01 per share, compared to $1.89 in the same quarter last year. Most expect a relatively stable quarter on the topline, though cloud may face deceleration due to enterprise cost-cutting and recent tariff headwinds. Search and YouTube remain pillars of resilience, particularly as advertisers favor scaled platforms amid economic uncertainty. However, brand and international spend—especially in autos and retail—may be more muted.

The cloud segment will be critical to Alphabet's stock reaction and sector read-throughs for Amazon Web Services (AWS) and Microsoft Azure. Channel checks suggest softening GCP growth, with UBS and Mizuho highlighting signs of spending constraints post-tariff announcement. Mizuho now models GCP growth at 22% for FY25, down from 27%, citing client budget caution. Yet google remains committed to the space, recently announcing plans to acquire cloud cybersecurity firm Wiz for $32 billion. While this deal won’t impact financials until 2026, it underscores Alphabet’s commitment to becoming more competitive with AWS and Azure, particularly in security.

CapEx will be another headline item. Alphabet disclosed plans to invest approximately $75 billion in 2025, largely to support technical infrastructure across Google Services, Cloud, and DeepMind. This figure has broad implications: hyperscaler investment has historically driven demand for AI chips from NVIDIA and AMD. The company’s Q4 commentary emphasized data center growth, and investors will want to know if this pace continues amid talk of a potential AI infrastructure bubble.

On the legal front, Alphabet recently lost a major antitrust case tied to its dominance in online advertising and is also facing the remedy phase of a separate trial regarding search monopoly practices. A judge has suggested that a breakup of key advertising assets like Google Ad Manager could be on the table. While Alphabet is expected to remain quiet during the call for legal reasons, investors will be parsing tone and any subtle shifts in strategic posture. Notably, some analysts—like those at KeyBanc and Citi—expect any remedy to have limited near-term financial impact but acknowledge the broader risk to Alphabet's business model.

Valuation provides some cushion. Shares of Alphabet are trading at roughly 14x forward earnings, below their long-term average and near the low end of the Magnificent Seven tech cohort. With shares having dropped to as low as $142 before rebounding to the $150 level this week. Bulls are watching for a hold above $151 as confirmation that sentiment is stabilizing.

YouTube, which accounts for roughly 12.5% of revenue, continues to see engagement gains—particularly with Shorts. This platform remains a major differentiator in the battle for digital ad dollars and could take share from TikTok, Snapchat, and Pinterest. However, tariffs may weigh on overall ad budgets. According to the Interactive Advertising Bureau, roughly half of advertisers plan to cut spending due to tariff impacts, which could affect YouTube in particular.

Despite these risks, most major analysts maintain Buy ratings, with price targets ranging between $185 and $229. Citi and Morgan Stanley both highlight AI-driven innovation in Search and YouTube as a long-term growth engine, and Citi's analysts believe Google will be among the last to feel macro impacts and among the first to recover. Some see potential spinoffs from legal proceedings, including the possibility of Alphabet divesting ad tech assets to preempt harsher rulings.

Alphabet's Q1 earnings will be watched closely not just for their own merit, but as a barometer for enterprise cloud health, AI infrastructure investment, and regulatory pressure on big tech. With macro clouds looming and tariff-related uncertainty mounting, this print could mark an inflection point. Hold the $142 floor and exceed on cloud or CapEx, and the stock may finally break out. Miss on ad growth or show hesitation on infrastructure, and support may give way.

Q4 Recap: Strong Ads and EPS Beat Overshadowed by Cloud Miss and $75B AI-Fueled CapEx Surge

Alphabet’s Q4 2024 earnings report painted a mixed picture, with strong bottom-line performance and continued ad momentum overshadowed by cloud softness and an aggressive capital expenditure forecast. While EPS of $2.15 narrowly topped the $2.13 consensus, and advertising revenue once again flexed its resilience, investor focus shifted quickly to the shortfall in cloud and the implications of Google’s $75 billion CapEx plan for 2025. Shares fell nearly 7% after hours as markets digested what was, on balance, a quarter heavy on AI ambition but light on immediate cloud upside.

The key strength in the quarter came from Alphabet’s advertising machine, which delivered $72.46 billion in revenue—above the $71.73 billion consensus. Google Search and YouTube both outperformed expectations, with the former hitting $54.03 billion versus $53.29 billion expected, and the latter landing at $10.47 billion against $10.22 billion consensus. These figures confirmed that ad demand—particularly for performance and political advertising—remains strong heading into an election year.

However, Google Cloud was the clear soft spot. At $11.96 billion in revenue, the segment missed expectations of $12.19 billion and posted a noticeable deceleration in growth compared to Q3. The company attributed the miss not to waning demand, but to supply-side capacity constraints in its AI infrastructure. While that explanation suggests potential upside later in 2025, the near-term result spooked investors, particularly as competitors like Microsoft Azure and Amazon AWS continue to battle for AI workloads.

Compounding concerns was Alphabet’s revised CapEx forecast: $75 billion for FY25, up sharply from the $59 billion expected. The increase is aimed at expanding AI capacity through continued investment in custom silicon (ASICs), data centers, and server infrastructure. While this reinforces Google's long-term AI positioning, it raises short-term questions about returns on investment, depreciation pressure, and margin sustainability.

Operating income came in at $30.97 billion, slightly above the $30.72 billion consensus, with a 32% operating margin that exceeded forecasts. Cloud operating income was also modestly better than expected at $2.09 billion versus $2.04 billion. Despite this, sell-side commentary suggested a cautious outlook, with analysts at JMP and Mizuho noting that investors are increasingly concerned about CapEx intensity, FX headwinds, and 2025 ad growth comps.

Heading into 2025, investors are likely to focus on three key themes: how quickly Google can ramp cloud capacity to meet AI demand; whether CapEx delivers sufficient ROI; and how the company navigates a more competitive, regulation-heavy environment.