Alphabet GOOGL/GOOG is set to release its fiscal fourth-quarter 2025 earnings report on Feb. 4 in the US. Here’s Morningstar’s take on what to look for in Alphabet’s earnings and the outlook for its stock.

Key Morningstar metrics for Alphabet

  • Fair Value Estimate: $340.00
  • Morningstar Rating: ★★★
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium

Alphabet earnings release date

  • Wednesday, Feb. 4, after the close of trading in the US

What to watch for in Alphabet’s Q4 earnings

  • Growth in Google Cloud is the most important metric. Strong outperformance here could boost overall results and further demonstrate GenAI monetization.
  • We are expecting a capex increase for 2026, and the scale of this increase will likely be interesting.
  • With the fourth quarter being strong for advertising, we are expecting search sales to remain solid. At the same time, we’ll be on the lookout for commentary on potential competition with OpenAI, ads in AI mode, and general monetization of GenAI search.

Fair Value Estimate for Alphabet stock

With its 3-star rating, we believe Alphabet’s stock is fairly valued compared with our long-term fair value estimate of $340 per share, which implies a 2025 adjusted price/earnings multiple of 32 times and an enterprise value/adjusted EBITDA multiple of 25 times. We forecast Alphabet’s top line growing at a 13% compound annual growth rate over the next five years.

Economic Moat rating

We believe Alphabet merits a wide economic moat rating, owing to the intangible assets, network effect, cost advantage, and customer switching costs that permeate a variety of businesses that it owns. While Alphabet’s own reporting operating segments are split into Google services, Google Cloud, and other bets, we believe that for the purposes of analyzing the firm’s economic moat and durable competitive advantage, a different split is more appropriate. We assign Google Search and Google Cloud Platform with wide moats, while it’s other bets portfolio receives no moat.

Financial strength

We view Alphabet’s financial position as virtually unassailable. The firm closed 2024 with cash and cash equivalents of $96 billion, more than offsetting its debt balance of $11 billion. The firm’s advertising business is a cash-generating machine, churning out tens of billions of dollars in free cash flow annually. Alongside advertising, Alphabet is making progress on diversifying its cash generation, with Google Cloud and YouTube subscription sales as additional free cash flow drivers.

Risk and uncertainty

We assign Alphabet an Uncertainty Rating of Medium. This reflects our belief that despite the near-term uncertainty around antitrust regulation and potential competition in the AI-infused search market, Alphabet is well positioned to expand its overall business while maintaining a rock-solid balance sheet.

We believe Google’s intangible assets and network effects will likely safeguard its dominance in the search space. Further, the firm’s continued investments in AI, which Alphabet can leverage across nearly every business it operates, should be value-accretive. We do think Google Search’s status as the runaway leader in search could come under pressure, primarily due to the antitrust scrutiny. While we don’t see the firm’s market leadership slipping due to antitrust concerns, this issue adds uncertainty to an otherwise stable business.

Alongside antitrust, the other key area of uncertainty for Alphabet as a whole is AI. The firm has invested, and continues to invest, a considerable amount of capital in new AI technologies, such as generative AI. While we view these investments as value-additive, especially considering the myriad ways Alphabet can monetize its technological know-how in AI, we view them as adding more uncertainty to the range of possible outcomes for Alphabet’s top line and profitability in the future.

The firm’s high dependence on user behavior data represents an environmental, social, and governance risk. If it fails to maintain adequate data privacy and security, Google’s advertising business would likely suffer, and users’ trust in the firm’s other products would likely falter.

GOOG bulls say

  • Alphabet’s core advertising business is deeply entrenched in advertising budgets, allowing the firm to benefit from a secular increase in digital advertising spending
  • The firm’s advertising business generates substantial cash flows that it can reinvest in growth areas such as GCP, AI-infused search, and aspirational projects such as Waymo.
  • Alphabet has a huge opportunity in the lucrative public cloud space as a key cloud vendor to enterprises looking to digitize their workloads.

GOOG bears say

  • While Alphabet is seeking to diversify its business away from search, text-based advertising remains the largest contributor to the firm’s top line, creating a concentration risk.
  • Alphabet’s continued investments in new, often unproven technologies have been a drag on cash flows.
  • Regulators around the world are keying in on Alphabet’s search dominance and could upend the search market through the imposition of deep, structural changes in the space.

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