Alphabet (NASDQ:GOOGL) stock is set to take the spotlight tomorrow, July 23, as the first big tech name to report Q2 earnings, and investors will watch closely for updates on its AI initiatives, advertising performance, and any signals about broader tech spending.
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Setting the stage for what to expect, Bank of America’s Justin Post – an analyst ranked among the top 1% of Wall Street stock experts – has modestly raised his already above-consensus estimates for Alphabet’s search business. His revisions reflect “stable spending growth” through Q2 that improved as the quarter progressed, bolstered by a friendlier macro environment and FX tailwinds.
Post now anticipates Q2 revenue of $81 billion and EPS of $2.21, up slightly from his previous estimates of $80 billion and $2.15. Both figures remain ahead of the Street’s forecast of $79.5 billion and $2.15. He projects 11% year-over-year growth in search revenue, versus the consensus at 9%. On the Cloud side, his $13.2 billion forecast also tops the $13.1 billion consensus, supported in part by recent Workspace pricing increases that could offer additional upside.
Meanwhile, Alphabet’s hiring trends offer a mixed signal. Job listings rose 14% sequentially in Q2, hinting at renewed headcount expansion – a potential margin risk. Yet, the continuation of its voluntary buyout program suggests the company is still keeping an eye on cost discipline.
Looking ahead to the print, Post believes the upside potential could come from commentary around stronger ad spending trends since April, solid search results that reflect effective AI monetization, and possibly a better-than-expected showing from YouTube due to easier comps. On the Cloud front, increased capacity and growing interest in Workspace AI features could provide another lift.
Still, investors will be paying close attention to paid click growth, a key sentiment gauge for Search that will be revealed in the 10-Q. While some industry checks suggest a slight slowdown in click volumes, Post emphasizes that monetization “remains strong.” Accounting for the Leap Year comp in Q1, the analyst is modeling 2% y/y paid click growth in Q2. Additionally, updates on AI Mode integration, Gemini traction, capex trends, and the OpenAI partnership are likely to be focal points.
“We remain constructive on Google’s ability to drive AI usage despite cautious sentiment,” Post noted, highlighting Gemini enhancements, AI Mode rollout, and Workspace pricing actions as standout developments year-to-date.
Even with a solid Q2 print in sight, Post cautions that the DOJ’s search antitrust trial – expected to reach a verdict in early August – could be the real market-moving event. That overhang may dampen post-earnings enthusiasm, at least in the short term, until legal clarity emerges.
That said, Post continues to view the stock’s setup as appealing, reiterating a Buy rating and nudging his price target from $200 to $210, implying potential upside of 10.5% from current levels.
29 other analysts join Post in the GOOGL bull camp and an additional 9 Holds can’t detract from a Strong Buy consensus rating. Meanwhile, the $206.51 average price target implies shares will appreciate by ~8% over the next year. (See GOOGL stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.