Alphabet Beats Wall Street Expectations in Q1 2025

Alphabet Inc., the parent company of Google and YouTube, started 2025 with solid first-quarter earnings that exceeded Wall Street’s expectations, reinforcing investor confidence despite a challenging backdrop of macroeconomic pressures, regulatory scrutiny, and intensifying competition in artificial intelligence.

The company’s results, released last Thursday, showed strength across its core advertising and cloud businesses. Google Cloud remains the company’s growth engine, increasing 28% year-over-year to $12.3 billion, down from 30% in the prior quarter. As additional capacity comes online, Google Cloud growth could re-accelerate in the second half of the year.

The company’s first-quarter strong result was supported by resilient demand for search and advertising services, strong growth in cloud computing, and expanding AI-driven features across its platforms. Investors have been closely watching Alphabet’s report, given rising concerns around President Trump’s tariff policies, the Department of Justice’s antitrust actions against Google, and competitive threats in the AI space.

Alphabet’s shares rebounded following the earnings results, however, current prices are still 22% lower year-to-date. The company encountered several challenges in the lead-up to its earnings report, dropping approximately 31% from its 52-week high to its April low. This decline was driven by a broader risk-off sentiment weighing heavily on tech stocks, mounting concerns over competition from AI-powered search tools such as OpenAI’s ChatGPT and XAI’s Grok, and increasing regulatory pressures.

Source: TradingView

Financial Highlights: Alphabet Q1 2025 Results

• Revenue: $90.23 billion, beating consensus estimate of $89.12 billion.
• Earnings Per Share (EPS): $2.81, compared to expectations of $2.01.
• Net Income: $34.54 billion, up 46% from $23.66 billion a year ago.

Alphabet reported a 46% surge in net income, rising to $34.54 billion, or $2.81 per share, up from $23.66 billion, or $1.89 per share, in the same period last year. The company noted that the results included $8 billion in unrealized gains from nonmarketable equity securities tied to its investment in a private company.

Search and Advertising Businesses Drive Growth

Alphabet’s advertising businesses once again proved to be the company’s engine of growth, delivering $66.89 billion in revenue, an 8.5% increase from the same period last year. The “Search and Other” segment, encompassing Google Search and related services marked a robust 9.8% year-over-year growth. Although YouTube’s ad revenue came in marginally below expectations, it still reflected solid demand, especially considering heightened competition from new AI-based content platforms.

Alphabet’s focus on integrating artificial intelligence into its products is paying dividends. AI Overviews, a generative AI feature that launched in May 2024, now boasts 1.5 billion monthly users, up from one billion just six months ago. CEO Sundar Pichai emphasized during the earnings call that AI Overviews played a significant role in boosting user engagement and contributed to the strong search revenue performance.

Google’s Chief Business Officer, Philipp Schindler, acknowledged that the company faces macroeconomic challenges, noting that President Trump’s decision to end the de minimis trade exemption on May 2, could hurt ad spending from key e-commerce customers like Temu and Shein. Alphabet’s management acknowledged that the closure of this loophole would cause a “slight headwind” to advertising revenue, particularly from Asia-Pacific-based retailers, but expressed confidence in the company’s ability to manage through these disruptions.

Key sectors such as finance, retail, health care, and travel continued to drive advertising revenue growth.

Google Cloud Growth Continues Amid Rising Competition

Google Cloud, another critical growth driver for Alphabet, saw its revenue climb 28% year-over-year to $12.26 billion, led by growth in Google Cloud Platform (GCP) across core GCP products, AI Infrastructure, and Generative AI Solutions. (1) Google Cloud posted an operating margin of 17.8%, a significant improvement from 9.4% a year earlier. While slightly missing analyst estimates, the segment’s improving profitability was notable.

The company’s recent $32 billion cash acquisition of cybersecurity firm Wiz, the largest in its history, is expected to enhance Google Cloud’s multicloud security capabilities and help attract more enterprise clients. CEO Sundar Pichai highlighted that with the acquisition of Wiz, Google aims to better support multicloud computing, a feature increasingly demanded by enterprise customers.

Capital Expenditures and AI Infrastructure Expansion

Alphabet’s commitment to capital investment remained unwavering. The company reiterated plans to spend approximately $75 billion in capital expenditures this year, largely aimed at expanding its AI infrastructure and data centre footprint. CFO Anat Ashkenazi noted that Alphabet ended the quarter with more cloud demand than it had capacity to serve, highlighting the strategic necessity of these investments.

The company also praised its partnership with Nvidia, being the first cloud provider to offer Blackwell GPUs and announcing plans to host the upcoming Vera Rubin chips, expected in 2026, as Alphabet strengthens its leadership in AI hardware solutions.

Other Bets Segment: Waymo and Verily Updates

Alphabet’s “Other Bets” segment, which includes experimental ventures like autonomous vehicle company Waymo and life sciences arm Verily, recorded $450 million in revenue, down 9% from a year earlier. Losses for the division widened to $1.23 billion, reflecting the continued early-stage nature of these projects. Nevertheless, Waymo’s progress was notable: it is now delivering over 250,000 fully autonomous paid rides weekly across San Francisco, Los Angeles, Phoenix, and Austin, up from 200,000 in February.

Shareholder Returns: Dividend Increase and Stock Buybacks

Alphabet’s shareholder returns also impressed. The company announced a 5% dividend hike to 21 cents per share and authorized a fresh $70 billion share buyback program, matching last year’s buyback announcement. These moves signal Alphabet’s confidence in its long-term financial stability even as it faces broad macroeconomic uncertainties.

Regulatory Risks and Macroeconomic Headwinds

The U.S. Department of Justice (DOJ) has launched an antitrust case against Alphabet’s Google, accusing it of maintaining an illegal monopoly in online search and artificial intelligence through exclusionary contracts, billions in payments, and strategic agreements that suppressed competition, including in AI-powered search tools. Proposed remedies could include forcing Google to divest Chrome, end default search agreements, share search data with rivals, and possibly sell its Android operating system to restore market competition. Despite these legal challenges and broader macroeconomic and geopolitical uncertainties, many analysts remain optimistic about Alphabet’s stock outlook.

Executives noted that it remains too early to gauge the full impact of President Trump’s increased tariffs. While Google is unlikely to be directly affected, its advertising and cloud clients could come under pressure. Although management has not observed any slowdown in ad demand through April, the broader uncertainty surrounding the tariffs has complicated future planning and raised concerns that some companies may eventually reduce their marketing budgets.

Conclusion

Alphabet’s strong performance in Search and Cloud, the positive reception of AI-driven features such as AI Overviews, and growing momentum behind its Gemini large language model (LLM) have sparked renewed optimism among investors.

With AI initiatives gaining momentum, a resilient advertising business, Alphabet remains a cornerstone of the technology sector, even amid the heightened tariff induced macroeconomic uncertainty and likely slower growth in Q2 due to tougher year-over-year comparisons.

Overall, Alphabet’s first-quarter performance delivered a powerful message to the market. Despite facing significant regulatory, competitive, and macroeconomic hurdles, the company continues to deliver robust top-line growth, improving margins, and strategic investments that position it well for the future. The recent sell-off seems excessively harsh, and the stock now appears significantly undervalued at its current price levels.

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Footnotes:

1. Alphabet Investor Relations: https://abc.xyz/assets/34/fa/ee06f3de4338b99acffc5c229d9f/2025q1-alphabet-earnings-release.pdf