Google Stock Edges Higher as Earnings Beat Estimates. Growing CapEx Remains an Issue. — Barrons.com
Dow Jones Newswires ·
By Adam Levine and Adam Clark
Google-parent Alphabet beat expectations for its second-quarter earnings results Wednesday afternoon. The stock initially fell in after-hours trading before climbing after the company held its post-earnings call with investors.
Earnings per share were up to $2.31, ahead of Wall Street's consensus estimate of $2.18, according to FactSet, and up from $1.89 last year. Revenue for the quarter reached $96.4 billion, above expectations of $94.0 billion, and up 14% on the year.
Leading the charge was Google Cloud, with sales up to $13.6 billion in the quarter, ahead of expectations of $13.1 billion and up 32% on the year.
The number of Google Cloud deals over $250 million doubled on the year, the company said, with as many billion-dollar deals in the first half of 2025 as there were all of last year.
Advertising revenue was strong in Search and YouTube. All told, ad sales were up 10% from 2024 and ahead of Wall Street expectations.
YouTube continues to drive advertising sales, up 13% on the year. Meanwhile, subscriptions are a growing portion of its revenue.
"A generation that grew up with YouTube on their devices is now increasingly watching their favorite creators and content on their televisions," Alphabet CEO Sundar Pichai said on the earnings call. "That includes millions of sports fans too."
It has been a long time since Google dominance in Search has been questioned, but that is happening now. AI search from start-ups like OpenAI and Perplexity give users more complete answers to questions, though they still suffer from "hallucinations," where they invent facts and relay them in a convincing fashion.
But there is no doubt that these AI search engines are becoming more popular, and Google is trying to keep users under its banner by rolling out AI summaries on top of Search results and a new "AI Mode" for search that mirrors what users get from the AI challengers. But Google Search's market share is near 90% outside of China, and any degradation of that will lead to reduced growth and profitability.
This issue has weighed on Alphabet's stock price. Over the last year, shares were up 4.6% compared with a 16.8% gain for the Nasdaq 100 index. Within the Magnificent Seven group, only Apple stock lags behind Alphabet's.
Second-quarter results may calm investor nerves. Shares were up 0.3% in Thursday trading.
Search ad revenue was up 12% over 2024, well ahead of expectations for a 9% expansion. Operating profit margin was 32%, similar to last year's second quarter.
"Search, during the second quarter of 2025, slightly beat the Street [estimates] (it also beat last quarter as well). Google Cloud was also slightly above the Street, and generally management sounded more confident on the call," wrote William Blair analyst Ralph Schackart in a research note. "The company is navigating the search market changes noting that the number of clicks grew 4% year-over-year and AI overviews is adding incremental search volume."
Schackart maintained an Outperform rating on Alphabet stock.
For some investors, the excellent results might have been overshadowed by a significant rise in Alphabet's projected capital expenditures for 2025 from $75 billion, just reaffirmed three months ago, to $85 billion. With about $40 billion invested in the first half of the year, that leaves another $45 billion remaining in 2025.
Meta Platforms raised its capex guidance a quarter ago. Many investors are chafing at these large investments, and the depreciation costs they bring.
The wild card is Waymo, Alphabet's self-driving taxi service. It has the most advanced autonomous technology, and the service is operational in five U.S. cities, driving a total of 71 million miles with passengers through March. While it is part of Alphabet's speculative Other Bets segment that lost $1.2 billion in the second quarter, Waymo could become an important contributor to future revenue and profit.
Waymo is testing in more than 10 new cities including New York and Philadelphia.
The U.S. dollar weakened considerably against foreign currencies in the second quarter, which is helpful to U.S. multinational companies. Alphabet gets half of its revenue from abroad. In the second quarter, Google saw an extra percentage point of growth from the weak dollar, versus a 1 percentage point headwind last year.
Write to Adam Levine at [email protected]
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