Alphabet stock rises on strong Q2 earnings

Alphabet (NASDAQ:GOOG) stock rose about 2% on Thursday after the Magnificent 7 tech giant reported strong second quarter earnings.

Revenue climbed 14% year over year to $96.4 billion, which exceeded estimates of $94 billion.

Net income surged 19% to $28.2 billion, while earnings increased 22% to $2.31 per share. This easily outpaced estimates of $2.18 per share.

The gains were strong across the board, as Google Services revenue jumped 12% to $82.5 billion. Within Google Services, Google Search revenue rose 12% to $54.2 billion, while YouTube ads surged 13% to $9.8 billion. The overall Google Advertising segment jumped 10% to $71.3 billion. Operating income within Google Services rose 11% to $33.1 billion.

Google Cloud saw a 32% rise in revenue to $13.6 billion. Meanwhile, operating income within Google Cloud surged a massive 142% to $2.83 billion.

“We had a standout quarter, with robust growth across the company. We are leading at the frontier of AI and shipping at an incredible pace. AI is positively impacting every part of the business, driving strong momentum,” Alphabet CEO Sundar Pichai said. “Search delivered double-digit revenue growth, and our new features, like AI Overviews and AI Mode, are performing well. We continue to see strong performance in YouTube as well as subscriptions offerings. And Cloud had strong growth in revenues, backlog and profitability. Its annual revenue run-rate is now more than $50 billion.”

More capex spending

In its outlook, Alphabet officials said they plan to increase the company’s investment in capital expenditures to $85 billion for the full year, up from the previous $75 billion. This is due to the strong demand for its cloud products and services.

The expenditures will likely be on servers, with the timing depending on the acceleration in the pace of data center construction. In 2026, the firm expects a further increase in capital expenditures from continuing demand.

However, Alphabet CFO Anat Ashkenazi said the additional capex spending could put pressure on the company’s profit and loss statement, or earnings.  

“In the second quarter, depreciation increased $1.3 billion year-over-year to $5 billion, reflecting a growth rate of 35%,” the CFO said. “Given the recent increase in CapEx investments, we expect the growth rate in depreciation to accelerate further in Q3. Second, as we have previously said, we expect some headcount growth in 2025 in key investment areas. In the third quarter, we expect a sequential increase in total headcount additions due in part to the hiring of new graduates.”

In addition, said Ashkenazi, expenses will be impacted by the launch of the new Pixel family of products in August.

Alphabet got a few price target raises post earnings, as Morgan Stanley increased its target by $5 to $210 per share, Oppenheimer bumped it up $15 to $235 per share, and BofA raised it by $7 to $217 per share.

Alphabet has a median price target of $210 per share, which would suggest a 7% return. It is also the cheapest Magnificent 7 stock, trading at 20 times earnings.