TLDR
- Alphabet reports Q4 earnings February 4 with analysts expecting $2.64 EPS (23% growth) and $111.3 billion revenue (15.4% increase)
- Ad revenue from Search and YouTube remains under scrutiny as investors assess AI-powered search monetization strategy
- Google Cloud posted 23.7% operating margin in Q3, marking transformation from 2019 losses to strong profitability
- Company plans $91-93 billion AI spending in 2025 with higher investments in 2026 to compete in AI race
- Wall Street maintains Strong Buy rating with $352.46 average price target showing 4.3% upside potential
Alphabet’s Q4 2025 earnings drop February 4, and three numbers could determine where the stock heads next. Wall Street forecasts earnings per share of $2.64, up 23% year-over-year. Revenue should reach $111.3 billion, climbing 15.4% from last year.
The tech giant faces growing questions about AI spending, cloud profitability, and advertising strength. These results could validate billions in AI investments or raise fresh concerns about returns.
Advertising Revenue Under the Microscope
Google’s advertising business generates the majority of revenue. Investors want clear signals about Search and YouTube performance. The fourth quarter typically brings strong ad numbers, and expectations remain high despite competition from OpenAI.
Management needs to explain how AI-powered search will generate revenue. Some worry generative AI apps could threaten Google’s search dominance. But advertising cash flow funds investments in Cloud, AI search, and projects like Waymo.
Google launched AI Max in September 2025 to help advertisers target customers better. AI Mode, the conversational search assistant, has over 75 million daily active users across 40 languages. These features could drive higher conversion rates and new revenue opportunities.
Cloud Margins Tell the Real Story
Google Cloud hit 23.7% operating margin in Q3 2025. That represents a massive turnaround from deep losses in 2019. Revenue growth matters, but profit margins show whether AI infrastructure spending pays off.
Cloud backlog jumped 82% to $155 billion at Q3 end. Morgan Stanley projects $58 billion in 2025 Cloud revenue. Base case calls for 44% year-over-year growth in 2026, with a bull scenario reaching 50% if major deals close.
Stifel analyst Mark Kelley raised his price target to $346 from $333. He expects Search and Cloud results to beat Wall Street estimates. The momentum looks strong heading into earnings.
AI Spending Reaches Record Levels
Alphabet plans $91-93 billion in AI spending for 2025, with even higher amounts coming in 2026. These investments could fuel another growth year or squeeze near-term cash flow. The question is whether massive outlays deliver results while maintaining margins.
Meta won investor approval with plans to spend $115-135 billion on AI this year, nearly double 2025 spending. Microsoft shares dropped after higher AI costs raised profitability concerns. Alphabet needs to show its spending strategy works.
Google’s proprietary ecosystem provides an edge. Search creates a competitive moat rivals can’t easily match. AI Mode and AI Overviews are expanding search usage, particularly among younger users seeking quick answers.
The Gemini large language models are gaining traction. Apple signed a multiyear deal to use Gemini in the revamped Siri launching late 2026. That creates a licensing revenue stream from Apple’s 2 billion device installed base.
YouTube dominates streaming by watch time. The platform signed a content deal with BBC and broadcast live NFL games drawing over 19 million viewers in September 2025. YouTube generates revenue from ads and subscriptions.
Alphabet holds $98.5 billion in cash at Q3 end. The stock trades at 30 times forward earnings, which looks expensive. But diversified revenue across Search, Cloud, and YouTube might justify the premium.
A federal judge ruled in January 2026 that Google must face an antitrust lawsuit over search market dominance. Legal risks remain, but core businesses keep performing.
Analysts rate GOOGL a Strong Buy based on 23 Buys and six Holds. The average price target of $352.46 implies 4.3% upside from current levels.
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