Alphabet to set tone for megacap earnings as headwinds swirl

(Bloomberg / Ryan Vlastelica) — Alphabet Inc. will set the tone for tech earnings this season, and investors are worried it may be a bum note.

The Google parent continues to struggle against a number of headwinds, including a recent loss in its antitrust battles and concerns about the competitive dynamics around artificial intelligence, an area where it continues to spend billions of dollars. However, there is also optimism the worst may be over, especially as it trades at a cheap multiple, has limited direct exposure to tariffs, and is expected to continue delivering strong growth.

Results are due after the close on Thursday, and will provide an early sense of how megacap tech stocks are viewing an environment marked by elevated policy risk and growing concerns over a recession. Earlier this week, Tesla Inc. reported a sharp drop in sales, while Netflix Inc. posted a record profit last week.

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“The level of uncertainty is at a maximum, given we don’t know what’s going to happen with tariffs, the rules of the game, or regulatory issues,” said Jim Awad, senior managing director at Clearstead Advisors. “Outlooks will be very cautious,” he added. “However, the devastation in big tech stocks like Alphabet has been so severe that there is room for error, and I suspect there’s more upside than downside over the long-term.”

Alphabet shares are down 17% this year, underperforming both the Nasdaq 100 Index and the S&P 500 communications services index, while a gauge of the stock’s volatility spiked to a five-year high earlier this month. The stock rose 0.9% on Thursday.

The recent weakness comes after a federal judge ruled that Alphabet’s Google illegally monopolized some online advertising technology markets, the latest example of an aggressive antitrust posture coming out of Washington. The company is back in court this week arguing over a Justice Department plan to break up the company

The legal battles comes at a bad time, with Alphabet playing defense to protect its dominant market share in internet search while broader economic and tariff-related concerns pressure the broader outlook for online advertising.

“If investing in US tech stocks was difficult right now, underwriting Google might be the closest thing to impossible,” Mark Shmulik, an analyst at Bernstein wrote in a report Wednesday. He cited a litany of question marks, including: “tariff exposure and recessionary impacts to eCom, advertising, and cloud spending, AI investment cycle and ‘bubble’ chatter, AI search disruption risk, a library of regulatory overhangs, and a potential lightning rod for international retaliation against US policy.”

Alphabet is expected to report net earnings growth of 6.2% this quarter, along with revenue growth of almost 12%. Looking forward, analysts are anticipating revenue growth of 12% this year, and a double-digit annual growth pace for the coming two years. Net earnings are seen growing almost 10% this year and accelerating in each of the two subsequent years.

Still, the consensus for Alphabet’s net 2025 earnings has been lowered by 1.6% over the past month, while the view for revenue is down 1.1%, according to data compiled by Bloomberg.

To Greg Halter, director of research at the Carnegie Investment Counsel, Alphabet’s valuation levels “seem pretty attractive,” as estimates may be further tweaked lower, but aren’t likely to see more draconian cuts.

The stock selloff has taken Alphabet’s multiple to 16.5 times estimated earnings, below its long-term average, and a discount to the overall market. It is the cheapest of the so-called Magnificent Seven.

A key focus will be Alphabet’s spending plans, especially when it comes to AI. Last quarter, it announced $75 billion in 2025 capital expenditures, more than had been expected, and it affirmed those plans at an event earlier this month. Among other major players in cloud computing, Microsoft Corp. has pulled back on data center projects, and Wells Fargo Securities wrote that Amazon.com Inc.’s web services business is pausing some data center leases.

Eric Clark, a portfolio manager at Accuvest Global Advisors, said the heavy spending and increased competition in online search from competitors like OpenAI, means that Alphabet’s story is less clear than the other megacaps.

“We’re all trying to figure out if this is a value or a value trap,” he said. “It is hard to sell, given the multiple and what a quality company it is, but it is spending so much, the core search business may end up being a melting ice cube, and it is really in the regulatory crosshairs. When I think through all the risks, I have to ask whether even this low multiple is still too high.”