Google Q2 Earnings Preview: AI Hard to Shake Search Business, Antitrust Ruling Uncertainty, Capital Expenditure Adjustment Becomes a Focus

With the arrival of the earnings season, the market's optimistic sentiment towards Google's artificial intelligence prospects has driven its stock price to experience a long-awaited sustained rebound.

In a nine-day consecutive rise, Google has accumulated a 9% increase, returning to positive annual growth for the first time since February this year. The market generally expects Google's Q2 revenue to approach $80 billion, a year-on-year increase of 12%; the expected earnings per share is $2.18, a year-on-year increase of 15%.

Citigroup and Evercore have even more optimistic expectations for Google, predicting that revenue will exceed $90 billion, and earnings per share will also be higher than market consensus. The positive forecasts are mainly based on the continued resilience of Google's search business, especially in commercial use.

Analysts are generally optimistic about Google's long-term value, Evercore has set a target price of $205, believing that the current stock price is undervalued and attractive. Some analysts have stated that considering Google's technological advancements, its stock currently "looks like a bargain."

Luke O’Neill, Chief Investment Officer of CooksonPeirce Wealth Management, stated:

“If Google can achieve the expected growth, then this stock looks extremely attractive.”

Strong Earnings Expectations, Q2 Revenue Expected to Exceed $90 Billion

The market is very optimistic about Google's upcoming Q2 earnings report. The general expectation among analysts is that Google's Q2 revenue will approach $80 billion, a year-on-year increase of 12%; the expected earnings per share is $2.18, a year-on-year increase of 15%.

Citigroup believes that market expectations may be overly conservative. It predicts that Google's total revenue for Q2 will reach $93.7 billion, a year-on-year increase of 10.6%. Among them, YouTube ad revenue is expected to grow by 10.0% year-on-year to $9.529 billion.

Citigroup expects Google's operating profit to be $31.4 billion, with an operating profit margin of 33.5%; GAAP earnings per share is expected to be $2.17, slightly higher than the market consensus of $2.16. Capital expenditures are expected to be $18.9 billion, and it believes that Google is unlikely to significantly raise its full-year capital expenditure guidance of $75 billion.

Evercore's forecast shows comprehensive optimism: it expects Google to achieve revenue of $95 billion in Q2, which is 10% higher than the general market expectation. Operating profit is expected to be $31.5 billion, 4% higher than market expectations, corresponding to an operating profit margin of 33.2%, expanding by 85 basis points compared to the same period last year. Earnings per share are expected to be $2.21, 3.7% higher than market expectations.

This robust growth momentum is expected to continue. Market forecasts indicate that Google's annual sales are likely to maintain a similar expansion rate before 2028. This outlook reinforces investors' views on the resilience of its core business

Search Business: Resilient Performance Under AI Impact

In addition to strong financial reports, another key factor that investors are optimistic about Google is its progress in the field of artificial intelligence and its relatively low valuation. Although the market has been concerned that AI chatbots from competitors like OpenAI may threaten Google's dominance in the search field, investor confidence has strengthened.

Google's internet search business is its cornerstone, contributing more than half of the company's total revenue. Citi expects Google's search revenue to grow by 8.8% year-on-year to $52.754 billion. Currently, the AI Overviews feature has driven query volume growth of over 10% in the U.S. and Indian markets, with monthly active users exceeding 1.5 billion.

Research reports also found that Google Search remains an absolute core for users of all age groups. Data shows that 85% of respondents consider Google as their core search engine, and 72% of users prefer Google as their online search platform.

Among users aged 41-55, 88% view Google as their core search engine, while this proportion drops to 83% among younger users aged 14-24, reflecting the impact of emerging search platforms on the younger demographic. ChatGPT is currently the most popular AI agent, with 55% of respondents using it most frequently, and this figure rises to 63% among young people aged 14-24. In comparison, Meta AI and Google Gemini are tied for second place, each with a usage rate of 17%.

From a commercial value perspective, Google's usage in core business applications such as shopping and travel continues to grow. About 84% of respondents indicated that their frequency of using Google for these core use cases has remained the same or increased compared to a year ago. Particularly among users aged 14-40, 40% use Google more frequently for shopping searches, and 34% for travel searches.

Evercore's survey also shows that in terms of commercial intent queries, Google maintains stable or record-high shares across all seven tracked business use cases. More importantly, 68% of users believe that Google's Gemini/AI Overviews are "more effective" than traditional search, with satisfaction significantly improved.

Cloud Business GPU Supply Tight, Analysts Optimistic: May Become Top Choice for Internet Stocks

In terms of cloud business, Evercore predicts Google's Q2 revenue to be $13.1 billion, a year-on-year increase of 26.8% and a quarter-on-quarter increase of 8%. However, the report specifically highlights a warning from management: GPU supply tightness may cause fluctuations in quarterly performance before new capacity comes online by the end of 2025 Citi expects Google Cloud's revenue in the second quarter to grow by 27% year-on-year, with infrastructure capacity construction progress being a key observation indicator. The company needs to continue expanding infrastructure investment to meet the growing demand for AI services, but it is not expected to raise this year's capital expenditure guidance of $75 billion.

Regarding YouTube's streaming business, Evercore stated that YouTube's share of TV streaming watch time in the U.S. reached a record 12.8% in June, up from 9.9% in June 2024, significantly ahead of other major streaming services like Netflix, Disney, Prime Video, and Roku. YouTube CEO Neal Mohan revealed at a recent investor meeting that YouTube Shorts no longer has a dilutive effect on monetization. These two factors, along with a slowdown in the comparative base, create potential for YouTube to achieve accelerated revenue growth starting in the second quarter.

Citi anticipates YouTube's revenue to grow by 10% year-on-year in the second quarter, but considering the lower comparative base from the same period last year, the actual growth may be more conservative. YouTube's newly launched GenAI features, including AI search result carousels and conversational AI tools, are expected to further enhance user engagement.

In terms of advertising business, Evercore analysts' advertising channel survey shows that overall budgets have increased moderately year-on-year but are still below initial plans. Fluctuations occurred in April due to tariff policy headlines and the early Easter, while transaction volumes stabilized in May. Funds are shifting towards channels that seem capable of withstanding macro shocks—sports, connected TV (CTV), and retail media networks—while CPM for general entertainment display ads has decreased by double-digit percentages, and tariff-sensitive verticals like automotive and consumer electronics remain weak.

Evercore analysts set a target price of $205. They believe that the current Google stock price of $191 corresponds to a projected P/E ratio of 17.6 times for 2026, which is within a reasonable range of 14.2 times to 30.8 times since 2020. Analysts maintain an "outperform" rating, considering Google as the preferred bullish target among large-cap internet stocks based on deep value analysis.

Daniel Newman, CEO of The Futurum Group, stated:

“This stock looks like a bargain, especially considering its technological advancements.”

Antitrust ruling approaching, uncertainty looms

In stark contrast to the optimistic performance expectations is the unresolved legal risk.

In this antitrust lawsuit, the U.S. Department of Justice has proposed several severe remedies, including forcing Google to sell its Chrome web browser and prohibiting it from paying fees to make Google Search the default search engine Google argues that the government's demands are too extreme, which not only harms consumer interests but also undermines America's technological leadership. Daniel Newman, CEO of The Futurum Group, believes that this uncertainty is dragging down stock prices.

"After concerns about artificial intelligence disruption, antitrust risks followed, which has caused a drag," he stated:

"The ruling could be deeply punitive, and as long as we don't know what the final outcome will be, the shadow of this uncertainty will linger for a long time."