GOOGL Earnings: The Cheapest of the Magnificent 7

Core Viewpoint - Alphabet is entering its Q2 earnings report with a need to demonstrate its value, as its stock performance has been flat year-to-date, trailing behind competitors like Nvidia, Microsoft, and Meta Platforms, but performing better than Tesla and Apple [1] Financial Performance - Alphabet is expected to report revenues of $79.25 billion for Q2 2025, reflecting an 11.06% year-over-year increase, with EPS forecasted at $2.14, representing a 13.2% growth compared to the previous year [3] - Estimates for the current quarter have risen by 1% in the last week, with next quarter estimates increasing by 1.85%, while next year's estimates have dropped by 1.3% [4] Market Position and Valuation - GOOGL is trading at 20x forward earnings, significantly below its 10-year median of 25.8x, indicating a valuation discount in a market focused on AI-driven premiums [2] - Despite skepticism from investors regarding potential search cannibalization from AI tools, data has not yet shown any significant decline in Alphabet's search business [2][7] Key Business Segments - Google Search remains a critical revenue driver, with ongoing scrutiny on ad spending trends and search monetization [7] - YouTube is emerging as a significant growth engine, surpassing traditional media players in US TV viewing time, and its ad monetization trends are expected to rebound after a slump [9][10] - Google Cloud has transformed into a meaningful contributor to Alphabet's revenue, generating $12.3 billion in Q1 2025, marking a 28% year-over-year increase, driven by enterprise demand for AI infrastructure [14][16] Competitive Landscape - Google Cloud is gaining market share, increasing to 11% from 10% in Q4 2024, while Amazon's share has decreased to 30% [16] - Recent partnerships, such as the deal with OpenAI, highlight Alphabet's growing credibility in AI infrastructure services [15] Long-term Outlook - Despite current bearish sentiment, Alphabet's stock is viewed as undervalued at 20x forward earnings, with expected annual earnings growth of 15% over the next three to five years [17] - The combination of low expectations, attractive valuation, and solid earnings momentum positions GOOGL as a potentially overlooked opportunity among the Magnificent 7 heading into Q2 earnings [18]