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Alphabet released its Q2 earnings on July 23. Alphabet is one of the very best companies and a large portion of my portfolio. Naturally, I am curious about what Alphabet has been up to. I believe Alphabet will be a winner in the AI arms race. Learn more here
Let's dig in:
Management’s summary
That’s how the management described the results:
We had a standout quarter, with robust growth across the company. We are leading at the frontier of AI and shipping at an incredible pace. AI is positively impacting every part of the business, driving strong momentum. Search delivered double-digit revenue growth, and our new features, like AI Overviews and AI Mode, are performing well. We continue to see strong performance in YouTube as well as subscriptions offerings. And Cloud had strong growth in revenues, backlog and profitability. Its annual revenue run-rate is now more than $50 billion. With this strong and growing demand for our Cloud products and services, we are increasing our investment in capital expenditures in 2025 to approximately $85 billion and are excited by the opportunity ahead.
Income Statement
Revenues increased by almost 14% and are approaching $100 billion per quarter (!). The gross margin is trending towards 60%. Did I already tell you that I am a massive fan of this corporation? Operating margins were flat, since the operating expenses, both in SG&A and R&D rose. The expenses in SG&A were driven by a large lawsuit settlement of $1.4 billion in regards to unlawfully tracking users’ data. Interest and investment income of $1 billion are nicely adding to the earnings before tax (EBT) of $32.5 billion.
Net income increased to $28.2 billion, and the earnings per share (EPS) increased by 22% compared to Q2/2024. The number of outstanding shares keeps going down as a result of the large share buybacks and for the first time since the dividend initiation last year, the dividend was increased by 5%. You can bet that Alphabet will keep a steady dividend and will increase it as the years go by.
Does this look like a dying business to you?
Balance Sheet
Total cash and short-term investments keep going down as a result of the large capital expenditures and share buybacks. The long-term debt increased compared to previous years as a result of the first bond offering of Alphabet in 5 years. Alphabet issued bonds with up to 40 years’ maturity, indicating the long-term stability of the company. THis is still a rock-solid balance sheet.
Cash Flow Statement
As I have mentioned a couple of times beforehand, the large capital expenditures will leave their mark in the depreciation and amortization segment. Stock-based compensation is still very high, but at least stable and not increasing too much. Overall, operating cash flow follows closely the net income, which is a good thing.
Capital expenditures almost doubled vs last year’s Q2 quarter. Alphabet has already spent $28.7 billion in share repurchases this year. There are 194 companies in the S&P 500 whose market cap is below that amount (!).
Oh dear, capital expenditures. Alphabet spends a tremendous amount of money on CapEx. Two companies about which I have recently written an article that profit a lot from this: AMD and Arista Networks. Make sure that you get familiar with them. You will find the links here:
Operational metrics
Google Search is often described as the big loser from the AI boom, and people are already stopping using it. The numbers show quite the contrary. Revenue was up 12% year over year. This is insane. Any healthy company is happy about 12% revenue growth. A company that is supposed to be in trouble is definitely not showing a 12% revenue increase.
Google Cloud is a fantastic success story: Revenue increased by 32% compared to last year and the operating income reached now a 21% margin, delivering $ 2.8 billion in operating income. Not that many companies reach this operating income for all their products in a single year.
Google Cloud is delivering fantastic growth for these reasons:
One, the number of deals over $250 million, doubling year-over-year; two, in the first half of 2025, we signed the same number of deals over $1 billion that we did in all of 2024. Three, the number of new GCP customers increased by nearly 28% quarter-over-quarter; four, more than 85,000 enterprises, including LVMH, Salesforce and Singapore's DBS Bank now build with Gemini, driving a 35x growth in Gemini usage year-over-year.
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