Alphabet Inc.

(NASDAQ Global Select)
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Slightly Bullish +25

Is Alphabet (GOOGL) Stock a Buy After Its 12% Earnings Drop?

Analyst downgrade Earnings report AI-generated analysis

πŸ“‰ Alphabet stock dropped 12.18% to $285.31 after earnings ended a run of 12 straight quarterly beats.

πŸ’° GAAP EPS came in at $2.12, missing the $2.97 consensus due to an $8.7 billion loss on equity securities.

πŸ“ˆ Revenue reached $127.58 billion, growing 24.6% year-over-year and meeting analyst estimates closely.

☁️ Google Cloud revenue surged 103%, significantly outpacing Azure's 48% growth and AWS's 37% growth.

πŸ“‰ Search and other revenue grew 12% to $63.35 billion but fell short of Wall Street expectations.

πŸ“‰ Ad spending on Google Search grew 12%, down from 17% last quarter, while YouTube ad spending grew 9%.

πŸ’» CEO Sundar Pichai stated the Gemini app has reached one billion users with query growth at a five-year high.

⚠️ Compute availability is cited as the main limit on faster growth for the company's AI initiatives.

πŸ’Έ Capital spending hit $51.355 billion in the quarter, resulting in negative free cash flow of -$9.065 billion.

πŸ“… Management repeated 2026 capex guidance of $195 billion to $205 billion with a material increase expected in 2027.

🏦 Goldman Sachs cut its price target to $385 from $435 but maintained its Buy rating on the stock.

πŸ“Š Of 62 analysts tracked, 57 rate the stock as Buy or Strong Buy despite the recent price decline.

πŸ“œ The company reported a backlog of $561 billion, up 256%, with about 55% expected to turn into revenue within 24 months.

Bullish Signals
  • Google Cloud revenue grew 103%, significantly outpacing competitors Azure and AWS in the quarter.
  • CEO Sundar Pichai reported that the Gemini app has reached one billion users, indicating strong AI adoption.
  • Year-over-year query growth is currently the highest it has been in five years according to management.
  • Management described AI searches as additive to the business rather than a drain on revenue.
  • The company reported a backlog of $561 billion, up 256%, with about 55% expected to convert to revenue within 24 months.
Risk Factors
  • GAAP EPS came in at $2.12, missing the $2.97 consensus due to an $8.7 billion loss on equity securities.
  • Search and other revenue fell short of expectations despite growing 12% year-over-year.
  • Ad spending on Google Search grew 12%, down from 17% last quarter, indicating slowing demand.
  • YouTube ad spending grew 9%, down from 13% the prior quarter, showing deceleration in video advertising.
  • Compute availability is cited as the main limit on faster growth for the company's AI initiatives.
  • Capital spending hit $51.355 billion in the quarter, resulting in negative free cash flow of -$9.065 billion.
  • Goldman Sachs cut its price target to $385 from $435 following the earnings report.
Full Analysis
Alphabet (GOOG) stock declined approximately 12% following its quarterly earnings report, which ended a streak of twelve consecutive quarters where the company beat consensus estimates. The share price dropped to $285.31, trading significantly below its May high of $404.47, with Barron's estimating the one-day loss in market value at roughly $560 billion. GAAP earnings per share came in at $2.12, missing the $2.97 consensus due to an $8.7 billion unrealized loss on equity securities that reduced the figure by $0.55. While total revenue of $127.58 billion met estimates and grew 24.6% year-over-year, operating income rose 30% to $40.58 billion, slightly below Wall Street's expectation of $43 billion. Search and other revenue reached $63.35 billion, growing 12% but falling short of expectations as ad spending on Google Search grew 12% compared to 17% the prior quarter. YouTube ad spending also slowed to 9% growth from 13%. Conversely, Google Cloud revenue surged 103%, outpacing competitors like Azure and AWS. CEO Sundar Pichai highlighted that the Gemini app has reached one billion users and noted year-over-year query growth is the highest in five years. However, management cited compute availability as a primary constraint on faster growth, with capital spending hitting $51.355 billion and free cash flow turning negative at -$9.065 billion. Analyst sentiment remains mixed despite the stock drop; Goldman Sachs cut its price target to $385 while maintaining a Buy rating, citing an 18x forward earnings multiple. Of 62 analysts tracked, 57 rate the stock as Buy or Strong Buy, suggesting the market views current headwinds as potentially transitory. Management reiterated 2026 capital expenditure guidance of $195 billion to $205 billion, expecting a material increase in 2027. The company reported a backlog of $561 billion, up 256%, with about 55% expected to convert to revenue within 24 months.