Alphabet (GOOGL) has been stuck in a tight trading range all year. However, its upcoming Q2 earnings report, set to be published after tomorrow’s close, could provide the big moment investors have been waiting for. Conversely, it could exacerbate some fears among market participants, such as a theoretical decline in organic click-through traffic because of alternative artificial intelligence (AI) solutions like OpenAI’s ChatGPT or self-cannibalization from Google’s own “AI Overviews.”
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For investors, there are three key areas to watch tomorrow, and given the confluence of factors in those areas, I’m confidently Bullish on Alphabet heading into tomorrow’s keenly anticipated figures.
AI Overviews Can Shift from Innovation to Threat
The most significant near-term threat to Alphabet’s advertising dominance may be self-inflicted. At the center of the debate are AI Overviews—AI-generated summaries now appearing at the top of many Google search results.
Alphabet maintains that these enhanced results monetize at rates comparable to traditional search. However, independent data paints a more skeptical picture, raising concerns that AI Overviews satisfy user intent too effectively, reducing the need to scroll or click through to external sites.
While Alphabet is diversified, Google Search still accounts for well over half of its total revenue. To mitigate the risk, AI Overviews are currently limited mostly to informational queries. And in theory, Alphabet can dial them back or remove them entirely. Still, the risk is subtle and systemic: if fewer users engage with organic content, advertisers may see diminished value, and over time, the overall quality of content on the open web could erode.
Google Cloud’s Ascent and the $75 Billion Bet
Meanwhile, Alphabet’s newer growth engine, Google Cloud, continues its impressive ascent. Recall that in its first quarter 2025 earnings report, Google Cloud revenues soared 28% to $12.3 billion, according to TipRanks data. The performance increased Alphabet’s market share from 11% to 12% in Q1, although it remains behind Microsoft (MSFT) and Amazon (AMZN), which command 22% and 29% of the cloud market share, respectively.
Alphabet now faces a supply-side challenge: demand for its AI-optimized infrastructure is outpacing its current buildout capacity, introducing uncertainty around short-term revenue and contributing to expected quarterly volatility. In response, the company plans to invest $75 billion in capital expenditures to expand its infrastructure—primarily servers and data centers—to meet this surging demand.
Of course, this surge in capital expenditures weighs on free cash flow and could slow the pace of stock buybacks (~$15 billion every quarter) and future dividend growth. Still, many view it as the “cost of admission” to compete at scale in AI. With its custom TPU silicon and growing investment in vertical integration, Alphabet is laying the foundation for long-term AI dominance.
GOOGL Navigates Global Regulatory Gauntlet
Lastly, Alphabet continues to navigate a complicated global regulatory landscape. The second half of 2025 may feature major decisions in antitrust cases in both the U.S. and Europe.
In the U.S., Alphabet is facing increasing pressure from the Department of Justice (DOJ), which is advocating for remedies that could fundamentally alter its business structure. For instance, the DOJ is making a case for “choice screens,” which would require Google to display a selection screen for users to choose a default search engine on devices and browsers. There is also a threat that Google may have to divest Chrome entirely.
Overseas, Alphabet is facing allegations that it is not in compliance with the European Union’s Digital Markets Act (DMA). The primary concern surrounds “self-preferencing,” wherein Google, allegedly, favors its specialized services (i.e., Google Hotels) over rival services in search results, which is illegal.
Is GOOGL Stock a Buy, Sell, or Hold?
On Wall Street, GOOGL carries a Strong Buy consensus rating based on 30 Buy, nine Hold, and zero Sell ratings in the past three months. GOOGL’s average stock price target of $205.71 implies an upside potential of 8.2% over the next twelve months.
Last week, Needham analyst Laura Martin maintained a Buy rating on GOOGL stock with an accompanying price target of $210. In a research note, the analyst emphasized that Google Search, Android, and Google Cloud have been major beneficiaries of significant technological waves, including the internet, mobile, and cloud technology waves, respectively. Additionally, she anticipates that GOOGL’s Gemini will be a leading player in the emerging GenAI tech wave.
GOOGL Stock Appears Undervalued Amid Structural Uncertainty
GOOGL’s underperformance over the past year—despite solid fundamentals, such as strong revenue growth and expanding margins—can largely be attributed to deep-rooted structural uncertainties. As a result, the stock appears to be trading at a discount. For instance, Alphabet’s forward P/E of 20.6 aligns with the sector median, despite boasting far superior forward revenue growth (11.81% vs. 3.41%) and gross profit margins (58.59% vs. 53.21%).
If Alphabet can effectively address these concerns, some of the pressure weighing on the stock could lift. The situation surrounding AI Overviews feels reminiscent of Meta’s (META) pivot into the metaverse—an ambitious move that was eventually scaled back after investors punished the stock. However, Alphabet’s initiative is more of a defensive evolution of its core product, not a speculative leap into uncharted territory. If the strategy underperforms, Alphabet retains the flexibility to pivot quickly.
Given this context—and considering Alphabet’s continued dominance in digital advertising along with its growing momentum in the cloud space—I remain Bullish on the stock’s long-term prospects.