TLDR
- Alphabet releases Q4 2025 earnings February 4 with Wall Street projecting $2.64 EPS and $111.3 billion revenue
- Search and YouTube ad revenue remains critical as investors evaluate AI-powered search monetization plans
- Google Cloud achieved 23.7% operating margin in Q3, showing dramatic improvement from 2019 losses
- AI infrastructure spending set at $91-93 billion for 2025 with increased investments planned for 2026
- Analysts hold Strong Buy consensus with $352.46 average target price indicating 4.3% potential upside
Alphabet’s fourth quarter earnings arrive February 4, and investors are focused on three specific data points. Analysts expect earnings per share of $2.64, representing 23% year-over-year growth. Revenue projections point to $111.3 billion, up 15.4% from the previous year.
The results could determine whether billions in AI spending deliver returns or create margin pressure. Google’s core businesses face scrutiny as competition intensifies and investment levels reach unprecedented heights.
Search and YouTube Revenue Performance
Advertising generates the bulk of Alphabet’s revenue. Investors need clarity on whether Search and YouTube are accelerating or slowing down. The fourth quarter usually delivers strong advertising performance, keeping expectations elevated for Search revenue.
Competition from OpenAI has sparked concerns about potential disruption to Google’s search business. Management commentary on AI-powered search ads will be crucial. Investors want specifics on how generative AI translates into actual revenue streams.
The advertising engine funds everything else. Cash flow from ads supports investments in Cloud infrastructure, AI development, and experimental ventures like Waymo. Google rolled out AI Max in September 2025, helping advertisers identify optimal targeting strategies and discover new customer segments.
AI Overviews are expanding search usage among younger demographics who prefer quick, AI-generated answers. AI Mode, the conversational search tool, reached over 75 million daily active users after launching across 40 languages. These developments could boost ad conversion rates and unlock fresh monetization paths.
Cloud Business Profitability in Focus
Google Cloud’s operating margin hit 23.7% in the third quarter. That marks a complete reversal from the substantial losses posted in 2019. The business now contributes meaningful profits to Alphabet’s bottom line.
Heavy AI infrastructure spending could either validate investments or compress margins. Investors need proof that capital outlays are generating returns. Cloud backlog surged 82% to $155 billion at the end of Q3, providing strong revenue visibility ahead.
Morgan Stanley estimates Google Cloud revenue around $58 billion for 2025. The firm projects 44% year-over-year growth in 2026 as a base case, with a bullish scenario reaching 50% if large enterprise deals materialize.
Stifel analyst Mark Kelley increased his price target to $346 from $333, citing expectations for Search and Cloud results to exceed Wall Street forecasts. The analyst maintains a Buy rating on the stock.
AI Investment Strategy Gets Tested
Alphabet’s AI spending reaches $91-93 billion in 2025, with higher amounts coming in 2026. These investments aim to maintain competitive position in the AI race, but investors need evidence the strategy works without crushing profitability.
Meta reported plans to spend $115-135 billion on AI this year, nearly doubling 2025 levels. Investors responded positively. Microsoft shares declined after AI costs raised questions about near-term profit margins. Alphabet’s approach will be measured against these outcomes.
Google’s search ecosystem provides a structural advantage. The proprietary platform creates barriers competitors struggle to overcome. Gemini large language models are already embedded in Workspace and Cloud products.
Apple signed a multiyear agreement to integrate Gemini into the redesigned Siri assistant launching late 2026. This deal creates a licensing revenue stream from Apple’s installed base of over 2 billion devices worldwide.
YouTube maintains dominance in streaming watch time. The platform secured a multiyear content partnership with BBC and broadcast live NFL games attracting more than 19 million viewers in September 2025. Revenue comes from both advertising and premium subscriptions.
Alphabet ended Q3 with approximately $98.5 billion in cash. The stock trades at 30 times forward earnings estimates. While the valuation appears rich, diversified revenue streams across Search, Cloud, and YouTube could support the premium pricing.
Legal challenges persist after a federal judge ruled in January 2026 that Google must face a consumer antitrust lawsuit alleging search market dominance.
Wall Street analysts maintain a Strong Buy rating with 23 Buy recommendations and six Hold ratings. The consensus price target of $352.46 suggests 4.3% upside from current trading levels.
