Is Alphabet a Buy Amid Q2 Beat, AI Visibility and Attractive Valuation?

The undisputed global leader of Internet search engine and artificial intelligence-powered cloud giant Alphabet Inc. GOOGL came up with quarterly adjusted earnings of $2.31 per share, beating the Zacks Consensus Estimate of $2.15 per share. The company posted quarterly revenues of $81.72 billion, surpassing the Zacks Consensus Estimate by 2.82%.Alphabet is significantly emphasizing its Ai-capabilities to boost its search engine advertising business and cloud computing business. Alphabet raised its 2025 capital expenditure target to $85 billion from the $75 billion projected earlier.  CEO Sundar Pichai said. “Our AI infrastructure investments are crucial to meeting the growth in demand from cloud customers.” Pichai also said, “We are seeing significant demand for our comprehensive AI product portfolio.” CFO Anat Ashkenazi said capital expenditures will rise yet again next year.Solid Earnings Estimate Revisions for GOOGL StockFor 2025, the Zacks Consensus Estimate currently shows revenues of $333.75 billion, suggesting an improvement of 13.1% year over year and earnings per share of $9.89, indicating an increase of 23% year over year. The Zacks Consensus Estimate for the current year has improved 3.6% in the last seven days.For 2026, the Zacks Consensus Estimate currently shows revenues of $373.75 billion, suggesting an improvement of 12% year over year and earnings per share of $10.56, indicating an increase of 6.7% year over year. The Zacks Consensus Estimate for next year has improved 4% in the last seven days.GOOGL currently has a long-term (3-5 years) EPS growth rate of 14.9%, well above the S&P 500’s long-term EPS growth rate of 12.6%.Image Source: Zacks Investment ResearchExtensive AI Infusion for Search EngineAlphabet is relying heavily on AI to maintain its search engine dominance. GOOGL is facing stiff competition from Microsoft Corp. MSFT and Baidu Inc. BIDU. Despite competition, GOOGL is currently accounting for nearly 90% global market share followed by almost 4% of Microsoft’s Bing.In the last reported quarter, Google Search and other revenues increased 11.7% year over year to $54.19 billion, surpassing the Zacks Consensus Estimate by 3.04%. Overall queries and commercial queries on Search continued to grow year over year in the reported quarter.Alphabet is advancing visual and contextual search capabilities. The Circle to Search feature is now active on more than 300 million devices. GOOGL is adding functionalities to help people explore complex topics and ask follow-up questions without switching apps. AI Overviews now reach more than 2 billion users per month and are available in over 200 countries across 40 languages. GOOGL is now driving over 10% more queries globally. Powered by Gemini 2.5, AI Overviews currently delivers the fastest AI responses in the industry. The combination of lens or Circle to Search, together with AI Overviews, is driving multimodal search usage. Google’s AI-powered Search features are driving deeper engagement, with AI Mode offering advanced reasoning and multimodal responses. Users are generating queries twice as long as those in traditional searches. The launch of AI Mode in the United States and India — where it currently has more than 100 million monthly active users — is expected to drive further growth.AI-Powered Cloud Computing BusinessGoogle Cloud has solidified its position as the third-largest provider in the highly competitive cloud infrastructure market against Amazon.com Inc.’s AMZN cloud arm, Amazon Web Services, and Microsoft’s Azure.GOOGL is cashing in on the increasing demand for Large Language Models with its most powerful AI model called Gemini. Google Bard and Search Generative Experience are powered by Gemini Pro to deliver an enhanced user experience. Google Cloud offers Duet AI, which provides pre-packaged AI agents that assist developers in writing, testing, documenting and operating software. GOOGL launched Gemma 3, a collection of lightweight, state-of-the-art open models that can run on a single GPU or Tensor Processing Unit (TPU). At its Cloud Next 2025 conference in Las Vegas, Alphabet unveiled Ironwood, its seventh-generation TPU, expected to be available later this year. Google Cloud unveiled its Cloud Wide Area Network, giving enterprises access to its private global fiber network. Alphabet also showcased Willow, its new quantum chip while on the AI model front, Alphabet launched Gemini 2.5, its most advanced reasoning model, alongside Gemini 2.5 Flash, a low-latency, cost-efficient version tailored for developers.Product DiversificationAlphabet’s self-driving business — Waymo — has recently gathered significant pace. GOOGL is scaling up this business, providing around 250,000 rides per week at present. Alphabet is also looking for opportunities to introduce this service to several new cities.As per Pichai, “The team is testing across more than 10 cities this year, including New York and Philadelphia. We hope to serve riders in all 10 in the future.” Waymo is using GOOGL’s cloud computing, AI infrastructure and mapping data to serve customers.Lucrative Valuation of GOOGL SharesAlphabet currently carries a forward P/E of 19.52X for the current financial year, compared with 20.42X of the industry and 19.96X of the S&P 500. GOOGL has a return on equity of 34.31% compared with 4.01% of the industry and 16.88% of the S&P 500 Index. Investment Thesis for GOOGL SharesYear to date, shares of Alphabet lagged the broad-market index — the S&P 500. However, the stock received huge momentum in the past three months, in which it jumped more than 20% compared with around 16% gain of the S&P 500. In the past month, GOOGL advanced 9.8%, while the S&P 500 rose 3.2%. Image Source: Zacks Investment ResearchAlphabet currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. At this stage, it will be prudent to buy GOOGL on every dip. Hold this stock for the long term as the company’s extensive AI thrust and robust future projections will generate more value. Image Source: Zacks Investment Research5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the favorite stock to gain +100% or more in the months ahead. They includeStock #1: A Disruptive Force with Notable Growth and ResilienceStock #2: Bullish Signs Signaling to Buy the DipStock #3: One of the Most Compelling Investments in the MarketStock #4: Leader In a Red-Hot Industry Poised for GrowthStock #5: Modern Omni-Channel Platform Coiled to SpringMost of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor. While not all picks can be winners, previous recommendations have soared +171%, +209% and +232%.Download Atomic Opportunity: Nuclear Energy's Comeback free today.Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report Baidu, Inc. (BIDU): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks