Google Earnings Report: Can AI Keep Driving Growth in Q2?

Google will release its Q2 earnings after the bell on July 23. With AI reshaping tech and regulators circling, investors are asking: Can Google maintain growth across ads, cloud, and Gemini while fending off legal threats and AI disruption?

The market expects revenue to come in at $93.7 billion, up 10.6% year-over-year, and earnings per share (EPS) to reach $2.18, an increase of 15%.

Whether the AI era is a blessing or a curse for Google remains a topic of debate. Much like how Google once disrupted Yahoo, the dominant search portal of its time, could it now be disrupted by AI itself? But unlike Yahoo’s complacency, Google has embraced AI decisively and remains a top-tier player. Concerns that AI-powered search engines could erode Google's ad revenue are, for now, largely unfounded.

The data supports this view. According to a report by Deutsche Bank, Google’s search market share actually increased in Q2 compared to Q1.

A Citi survey shows that 85% of users still use Google Search, and 72% choose Google as their primary source for information—especially among those over 40, who tend to be more loyal. Google Search dominates in commercial use cases like shopping and travel, while AI tools are more commonly used for research tasks like translation, Q&A, and content aggregation.

An Evercore survey found that in seven tracked commercial use cases, Google maintained or reached record-high market share. More importantly, 68% of users felt that Gemini/AI Overviews were “more effective” than traditional search, with satisfaction levels significantly improved.

Citi forecasts Google’s core search ad revenue to be $52.7 billion in Q2, up about 9% year-over-year. Ad spending has accelerated since April, and integrating Gemini into search is enhancing monetization opportunities.

YouTube Advertising: Expected to bring in $9.5 billion in Q2, up roughly 10% year-over-year, mainly driven by the rising contribution from Shorts ads. In June, YouTube captured 12.8% of U.S. TV streaming viewership—an all-time high—well ahead of Netflix, Disney+, Prime Video, and Roku.

Google Network (Ads on Third-Party Websites): Revenue is expected to remain flat at $7.3 billion year-over-year.

Google Cloud: Rising Enterprise Stickiness & Leading Gemini Integration

The market expects Google Cloud’s Q2 revenue to reach $13.1 billion, a 26% increase from a year ago. The main growth drivers include the integration of the Gemini AI model with Workspace, which boosts enterprise client retention, and the mass production of Google’s in-house Cypress chip. This custom chip significantly improves AI computing efficiency and cost structure, potentially replacing 30% of third-party CPU/GPU purchases—saving an estimated $5 billion and enhancing AI performance.

In terms of AI model daily active users (DAU), Gemini continues to grow steadily, and challengers like Perplexity have yet to pose a meaningful threat. Among AI tools, ChatGPT dominates with a 55% market share. Meta AI and Google Gemini are tied for second place, each with a 17% share, securing their position in the leading group. Recent friction between OpenAI and Microsoft may create opportunities for other AI models.

Capital Expenditures and Valuation:

Google CEO Sundar Pichai has previously emphasized that the risk of underinvesting in AI far outweighs the risk of overinvesting. This sets the tone for Google’s aggressive AI investment strategy. If capital expenditures rise again this quarter, it would signal strong confidence in the progress of its AI initiatives.

It’s also worth noting that Google is the only company among the “Magnificent Seven” trading at a price-to-earnings (P/E) ratio below that of the S&P 500. With such a low valuation, any earnings beat could strongly boost the stock price.

The main reason behind Google’s subdued valuation is an ongoing U.S. Department of Justice antitrust lawsuit, which seeks to force Google to divest its Chrome browser and ban payments that secure Google Search’s default status. However, Google’s management has stated it will actively appeal. Under a potentially more tech-friendly Trump administration, the case is unlikely to materially impact business in the short term.