ii view: why Google owner Alphabet is doing better than expected

First-quarter results to 31 March

• Revenue up 12% to $90.23 billion
• Adjusted earnings up 48% to $2.81 per share

Chief Executive Sundar Pichai said:

“We’re pleased with our strong Q1 results, which reflect healthy growth and momentum across the business. Underpinning this growth is our unique full stack approach to AI. 

“This quarter was super exciting as we rolled out Gemini 2.5, our most intelligent AI model, which is achieving breakthroughs in performance and is an extraordinary foundation for our future innovation.”

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ii round-up:

Google and YouTube owner Alphabet Inc Class A (NASDAQ:GOOGL) detailed sales and earnings that beat Wall Street forecasts, aided by a continuing enhancement of services via AI.

Overall revenue for the first quarter to 31 March climbed 12% to $90.23 billion, driving up adjusted earnings to $2.81 per share from $1.89 last year. Analysts had expected outcomes of $89.1 billion and $2.01 per share respectively. AI Overviews, Alphabet’s AI tool placed at the top of Google’s search results page, now has 1.5 billion users per month, up from one billion in October.

Shares in the Nasdaq 100 and S&P 500 company rose around 5% in post results US trading having come into these latest results down 16% year-to-date. That’s similar to fellow AI and cloud data providers Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN). The Nasdaq 100 index is down almost 9% in 2025.

Alphabet did point to potential trade tariff hurdles, with Donald Trump seen scrapping duty-free imports on shipments of goods under $800. Chinese e-commerce companies such as Temu and Shein are expected to be impacted, potentially reducing demand for online advertising.  

Google-related adverting sales, including from YouTube, climbed to $66.9 billion during the quarter, up from $61.7 billion in Q1 2024. 

Cloud data-related revenue soared to $12.26 billion from $9.6 billion a year ago, although marginally missed Wall Street hopes of $12.27 billion. 

Other bet-related sales and including its Waymo business effectively competing against Tesla Inc (NASDAQ:TSLA) self-drive technologies, fell to $450 million from $495 million a year ago. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on Alphabet shares post the results, flagging a fair value share price estimate of $185.

ii view:

Started in 1998 as Google before changing to Alphabet in 2015, the company generated revenues of just over $350 billion in 2024. Google Services, combining businesses such as advertising and subscription fees, generated the bulk of sales at 87%. That was followed by the Cloud data business at 12%, with Other Bets making up most of the 1% balance. 

Geographically, North America remained its biggest market in 2024 at almost half of all sales. That’s followed by Europe, the Middle East and Africa (EMEA) at around 29%, Asia-Pacific 16%, and Latin America the balance.  

For investors, changes to US trade regulations could now dampen demand for advertising services. Expected investment spending of around $75 billion on items such as datacentres and AI is not guaranteed to generate bigger profits, with competition likely to intensify. Supply chain constraints in relation to building new datacentres were previously highlighted, while government concerns regarding industry dominance have not gone away. 

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More favourably, early spending on AI services does appear to be reaping rewards. Diversity of both business type and geographical region exist. Ownership of the Android mobile phone operating system leaves it less depend than say Meta Platforms Inc Class A (NASDAQ:META) on the metrics set by Apple for advertising privacy. Meanwhile, an increased focus on shareholder returns previously saw the introduction of a dividend payment alongside share buybacks, giving a modest forecast dividend yield of 0.5%.  

On balance, and while US trade law changes have increased risks, this well-managed and diversified tech titan looks to remain worthy of its place in many investor portfolios.  

Positives

• Alphabet dominates the digital advertising market
• Focus on costs

Negatives

• High AI related competition
• Subject to currency movements

The average rating of stock market analysts:

Buy