Alphabet (GOOGL.US) will release its 1Q25 earnings report today after the market closes. This will be the second earnings report among the so-called "Magnificent Seven," following Tesla, which, despite disappointing results, gained after news of Elon Musk's increased involvement in the company's operations.
In light of the widespread weakness among leading Big Tech companies (all of these companies have experienced higher declines than the broader US market since the beginning of the year), today's Alphabet earnings will be a significant test of how the company operates in a new environment dominated by uncertainty. During today's earnings release, not only the financial data will be important, but also the message from the management indicating to investors whether Alphabet is navigating safely through the turbulent waters of an uncertain market environment.
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From a technical perspective, a double bottom pattern may be forming on Alphabet's chart. If today's earnings results turn out to be a positive surprise and the stock price climbs above the $160.77 level, it could signal a reversal of the downward trend that has been affecting the tech giant's shares since the beginning of 2025. Source: xStation
Market sentiment ahead of earnings
The company is up around 2% during today's session before the earnings release, signaling some optimism. In two of the last four quarterly releases, Alphabet’s stock rose similarly ahead of the report.
Despite the year-to-date decline in Alphabet’s stock, analyst sentiment remains optimistic. Although the share of “buy” recommendations has slightly declined since the beginning of 2025, it still stands above 80%. Moreover, despite a reduction in the average price target, it remains above $200, currently at $202.96. The spread between the 12-month price target and current valuation remains elevated relative to the past year, slightly below the local high from early September 2024. Interestingly, a similarly wide spread was also visible around the local price bottom back then.
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Analyst sentiment towards Alphabet. Source: Bloomberg Finance L.P.
Q1 2025 Financial Forecasts
The market expects Alphabet to report revenue of $89.1 billion (+11% y/y). Operating income is expected to reach $28.58 billion (+12% y/y). This stronger profit growth implies a slight margin improvement to above 32.08% (+0.45 pp). Effective cost management will be one of the biggest challenges for Alphabet in this environment. While sustaining strong revenue growth seems less at risk, managing expenses—especially given capital-intensive AI development plans—may be challenging.
Investors are particularly sensitive to changes in operating income. However, lower results may not trigger a strong selloff if management communicates a long-term ability to maintain and improve profitability.
Consensus expects adjusted EPS of $2.01, a 6% y/y increase.
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Forecasted financial results compared to Q1 2024 (in billion $ except EPS). Source: Bloomberg Finance L.P., XTB Research
Among the business segments, Google Cloud will be closely watched, still acting as a growth engine. Investors will also focus on dynamics in ad segment. Although it is growing at a slower rate than the Cloud segment, advertising still accounts for over 70% of Alphabet’s total revenue and may be vulnerable to geopolitical uncertainty.
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Forecasted revenue by segment compared to Q1 2024 (in billion $). Source: Bloomberg Finance L.P., XTB Research
Cloud segment still in focus
Alphabet remains at a critical point. With rivals signaling a slowdown in data center expansion amid rising uncertainty, Alphabet may either follow a cautious strategy (likely dampening growth) or seize the opportunity to gain market share by acting aggressively.
The second approach would be riskier and more costly, potentially causing erosion in the segment’s operating margin. It would, however, be an investment in the better future market position.
Investors will be watching not just the quarterly results but also the forward outlook and management’s tone regarding the Cloud business.
Forecasted Cloud segment revenue for Q1 2025 is $12.32 billion, which would be the highest quarterly result in Alphabet's history. However, operating income is expected to slightly decline versus the prior quarter, but at $1.94 billion it would still be over twice the result from Q1 2024.
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Alphabet’s Cloud Segment revenue and operating income remain in upward trend since Q3 2022 (apart from one-off margin dip in Q3 2023). Source: Bloomberg Finance L.P., XTB Research
Tariffs still a key topic
One of the key topics that investors will be closely watching during the earnings call is the impact of tariffs and macroeconomic uncertainty on the company’s operations. Among the major Big Tech companies, Alphabet has shown the greatest resilience to potential geopolitical turmoil and has often demonstrated the fastest recovery following periods of uncertainty.
At this point, Alphabet does not appear to be in significantly better shape than its peers, with its stock down approximately 17% year-to-date—placing it squarely in the middle of the “Magnificent Seven.”
The first step toward rebuilding investor confidence will be outlining the scope and impact of tariffs and overall geopolitical uncertainty on the company’s operations. As such, we can expect questions during today’s conference about how strongly tariffs will affect Alphabet’s business. It is worth noting that this isn’t necessarily about the direct impact—which is likely to be limited—but rather the indirect effect of uncertainty on the willingness of Alphabet’s clients to spend on advertising, which constitutes a significant portion of the company’s revenue.
AI – threat or opportunity?
Another key element of today’s earnings report will be addressing whether the growing AI segment represents an opportunity or an increasing threat for Alphabet. Although Alphabet’s Gemini language model is a strong competitor in the market, it’s important to note that the expanding world of artificial intelligence models—gaining more and more users—could pose a risk to the company’s most important revenue stream: Google Search.
Until now, Google has been the undisputed giant in the search engine market, but shifting user habits and the rapid development of alternative tools to traditional search engines could significantly change the current balance of power.
As a result, investors will be looking for clear signals in today’s management commentary on whether Gemini will serve as a sufficient safeguard to protect the company’s core revenue segment.
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