Alphabet GOOGL is set to release its fiscal second-quarter earnings report on July 22. 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: $433.00
  • Morningstar Rating: ★★★★
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium

Alphabet earnings release date

  • Wednesday, July 22, after the close of trading

What to watch for in Alphabet’s Q2 earnings

  • Look for Google Cloud growth in both quarterly numbers and contracted future revenue (or backlog). We think investors want certainty that the $460 billion backlog will convert to sales over the next two years, and also want to know what that trajectory will look like. Non-backlog factors, such as consumption-based spending and new commitments, will be important for understanding the health of the cloud business.
  • The firm should be at the top end of its $180 billion-$190 billion annual capital expenditure guidance. We think investors will key in on the annual capital expenditure for 2026, as well as any implied numbers it may provide for 2027 and their associated impacts on earnings.
  • Look at the monthly active users for Gemini, AI mode, and AI Overviews, as these numbers help understand the strength of the firm’s artificial intelligence models among consumers.
  • Google Search and AI monetization via Search remain crucial, in our view. We expect monetization to remain strong and believe the transition shows the firm has figured out AI-mode monetization.

Fair Value Estimate for Alphabet

We retain our $433 per share fair value estimate going into earnings. We see the stock as cheap and expect investors to appreciate the firm’s multi-vector monetization opportunity in AI throughout the year. While there are concerns about Gemini falling behind at the frontier, we think Alphabet remains competitively well-positioned in the model layer and across the entire AI stack (chips, cloud infrastructure, and applications). We believe Alphabet can find monetization opportunities across its businesses, leveraging AI.

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 its businesses. We assign wide moats to Google Search, YouTube, Google Cloud, Android, and Google Play.

While Alphabet’s other bets portfolio includes some interesting companies, including Waymo, the segment continues to burn capital, generating returns well below its cost of capital. As a result, we ascribe a no-moat rating to Alphabet’s other bets.

Financial strength

We view Alphabet’s financial position as virtually unassailable. The firm closed 2025 with cash and cash equivalents of $127 billion, more than offsetting its debt balance of $46 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 near-term uncertainty around antitrust regulation and potential competition in the AI-infused search market, the firm 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. 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. While we view the firm’s AI investments as value-accretive, especially considering the myriad ways Alphabet can monetize its technological know-how in AI, we also see 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.

GOOGL 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 like Waymo.
  • Alphabet has a huge opportunity in the lucrative public cloud space as a key cloud vendor to enterprises looking to digitize their workloads.

GOOGL 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 by imposing deep structural changes in the space.

This article was compiled by Irza Waraich.