Going Into Earnings, Is Alphabet Stock a Buy, a Sell, or Fairly Valued?

Alphabet is set to release its third-quarter 2025 earnings report on Oct. 29. 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: $237.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

Alphabet Earnings Release Date

• Wednesday, Oct. 29, after the close of trading

What to Watch for in Alphabet’s Q3 Earnings

• Key numbers for investors are growth in Search and Google Cloud. We are expecting Search sales to remain strong and for Cloud to accelerate sequentially.
• Investors will want commentary on artificial intelligence capital expenditure and monetization, since they’re increasingly worried about AI monetization.
• We expect continued data points that show not only Gemini’s strong adoption, but also LLM-driven advertising improvements.

Fair Value Estimate for Alphabet Stock

With its 3-star rating, we believe Alphabet stock is fairly valued compared with our long-term fair value estimate of $237, which implies a 2025 adjusted price/earnings multiple of 26 times and an enterprise value/adjusted EBITDA multiple of 19 times. We forecast Alphabet’s top line growing at an 10% compound annual growth rate over the next five years.

Read more about Alphabet’s fair value estimate.

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.

While Alphabet’s reported operating segments are split up 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 look at Google Search, YouTube, Google Cloud, Android and Google Play, Devices, and Other Bets (which includes Google’s aspirational projects such as self-driving vehicles and internet access).

Read more about Alphabet’s economic moat.

Financial Strength

We view Alphabet’s financial position as virtually unassailable. The firm closed out 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.

Read more about Alphabet’s financial strength.

Risk and Uncertainty

We assign Alphabet an Uncertainty Rating of Medium. Our rating 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.

Read more about Alphabet’s risk and uncertainty.

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 flow 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.

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, via its Other Bets business 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 search space.

This article was compiled by Frank Lee.