Alphabet Inc
What Happened: Alphabet reported financial results for the second quarter after the market close on Tuesday. The company delivered revenue of $84.742 billion and earnings of $1.89 per share, beating analyst estimates.
Total revenue was up 14% year-over-year, driven by ongoing strength in Search and momentum in Cloud, which is what analysts are highlighting Wednesday morning.
BMO Capital Markets analyst Brian Pitz reiterated an Outperform rating and price target of $222, citing accelerating Search and Cloud revenue on the back of AI-related contributions.
The BMO analyst noted Search revenue accelerated 20 basis points quarter-over-quarter on more difficult comparisons, implying that advertisers see improved AI-related return on ad spend. The analyst further highlighted Alphabet's cost to serve AI overviews was flat quarter-over-quarter despite a doubling of model size.
"The combination of higher query volume and lower incremental costs implies that AI benefits to Search will be a multi-year event," Pitz said in a note to clients.
RBC Capital Markets analyst Brad Erickson also highlighted the continued emphasis on expanded volume and higher quality of queries with generative search and suggested there could be further upside from the rollout of ads above and below the AI overview box.
"However, we expect investors to take the Q3 margin commentary as slightly worse as AI-related depreciation begins to roll through the model," the analyst said.
RBC Capital "modestly" raised its earnings estimates for 2026 and took its 12-month price target up to $204 from $200, while maintaining an Outperform rating.
"With Search continuing to outperform, the company is giving more evidence of being an AI winner rather than loser with improving operating leverage, compounding earnings and rising capital return," Erickson said.
JMP Securities analyst Andrew Boone also raised estimates "slightly" and maintained an Outperform rating on Alphabet shares as he sees benefits from AI in the early stages.
Boone believes Search growth is sustainable on the back of AI-related improvements. The analyst expects ongoing cost discipline to drive margin expansion moving forward.
"Google noted that over the past quarter it doubled the model size for AI Overviews while improving latency and keeping cost per AI Overview flat as we expect AI compute costs to continue to come down given efficiency optimization, likely unlocking more AI use cases across Google," Boone said, echoing commentary from other analysts.
JMP Securities has a price target of $200 on Alphabet stock based on a 24x multiple on its 2025 earnings expectations. The firm said Alphabet's vast total addressable market, scale across search, video, cloud and high profitability justify its price target.
GOOG Price Action: Alphabet shares were down 4.52% at $175.21 at the time of publication Wednesday, according to Benzinga Pro.
