Google (Alphabet) recently released impressive Q1 results that exceeded market expectations, with revenues of $90.23 billion and earnings of $2.81 per share compared to consensus estimates of $89.12 billion and $2.01 respectively. The 12% year-over-year revenue growth was primarily driven by the cloud business, which saw a robust 28% increase to $12.3 billion. Google Search revenue grew 10% to $50.7 billion, while YouTube ad revenue also increased 10% to $8.9 billion.
The company demonstrated strong operational efficiency with its operating margin expanding 200 basis points year-over-year to 34%. This margin expansion, combined with higher revenue, contributed to a remarkable 49% rise in earnings per share. The market responded positively to these results, with GOOG stock surging 5% in after-hours trading following the announcement.
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Innovation and Growth Initiatives
Google continues to make significant strides in its autonomous driving technology. Waymo, its self-driving car unit, now provides more than 250,000 fully autonomous paid rides weekly across San Francisco, Los Angeles, Phoenix, and Austin regions, up from 200,000 in February before expanding to additional locations.
Despite the strong quarterly performance, GOOG stock has mirrored the broader NASDAQ’s struggles in 2025, with returns of approximately -15% since the beginning of the year (as of April 24) compared to NASDAQ’s 11% decline. These challenges stem from ongoing tariff concerns, trade war tensions, and geopolitical uncertainties affecting the tech sector as a whole.
Valuation Analysis
The company remains committed to its AI strategy, planning to spend $75 billion in capital expenditures this year, while also authorizing a $70 billion share buyback plan. Investors remain optimistic about the potential AI-driven growth for Google’s advertising business, which could drive future revenue expansion.
At post-earnings levels around $169, Google trades at 5.9x trailing revenues and 19x trailing earnings, both slightly below the stock’s five-year average P/S ratio of 6.2x and P/E ratio of 24x. Given Alphabet’s promising earnings growth potential from its AI initiatives and the ongoing momentum in its cloud division, we believe that the company warrants a premium valuation multiple compared to its historical average.
Also, Google has shown mixed resilience during recent market downturns. During the 2022 inflation shock, GOOG stock fell 44.6% compared to the S&P 500’s 25.4% decline. In contrast, during the COVID-19 pandemic in 2020, GOOG fell 30.8% versus the S&P 500’s 33.9% decline, demonstrating slightly better performance than the broader market.
Risks to Consider
Several risk factors could impact Google’s performance moving forward:
- Rising datacenter costs amid tariffs on China could affect profitability as the company expands its AI and cloud infrastructure.
- In scenarios of increasing tariffs and slowing economic growth, advertisers typically reduce spending, which could directly impact Google’s bottom line.
Takeaway
Google presents a compelling investment case despite current market challenges. The company’s Q1 results demonstrate continued execution excellence, particularly in high-growth segments like cloud computing and AI integration. While the stock has faced pressure this year alongside the broader tech sector, its current valuation appears attractive relative to historical averages and future growth potential.
The commitment to significant capital expenditures signals confidence in long-term growth initiatives, particularly in AI. Though risks exist regarding datacenter costs and potential advertising sensitivity to economic conditions, Google appears better positioned than many tech peers to weather tariff and trade tensions. For investors seeking exposure to AI-driven growth and cloud computing expansion, Google’s current valuation presents an attractive entry point, especially for those with a long-term investment horizon.
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