Alphabet Inc., the parent company of Google, is set to report its fourth-quarter earnings bolstered by an improving performance across key segments, particularly Search and Cloud. The increasing influence of artificial intelligence within its products has sparked heightened usage and boosted advertising demand, setting a solid foundation for results that could outpace current market expectations in both revenue and profitability.
Justin Post, a Bank of America Securities analyst specializing in technology stocks, anticipates that Alphabet will deliver fourth-quarter results surpassing consensus estimates. Ahead of the earnings release scheduled for February 4, Post has incrementally raised his revenue and earnings per share (EPS) projections, underpinned by early signs of a resilient advertising market and heightened user engagement driven by Gemini-related artificial intelligence offerings.
Maintaining a Buy rating on Alphabet, Post has set a price target of $370, reflecting his confidence in the company’s growth trajectory. He points to the strong quarterly results from Meta Platforms Inc. as an indicator of robust holiday-season advertising spending, which likely benefited Alphabet as well. Consequently, Post increased his forecast for Search revenue growth from 14% to approximately 15%, indicating greater optimism about the segment’s performance.
Further detail from Post’s revisions reveals Search revenue growth could range between 15% and 16%, notably higher than the Street’s expectation near 13%. Similarly, YouTube is anticipated to grow between 14% and 15%, versus a consensus estimate hovering around 13%. These upward adjustments suggest higher demand for Alphabet’s primary advertising platforms heading into the new year.
Fourth-Quarter and Near-Term Financial Outlook
For the fourth quarter specifically, Post forecasts Alphabet will generate revenue of approximately $95.9 billion, exceeding the consensus estimate of $95.2 billion. His EPS projection stands at $2.65, marginally above the Street’s forecast of $2.64. Operating expenses are predicted to reach $28 billion, reflecting a 13% year-over-year increase. Despite higher costs, Post expects the company to achieve an operating margin expansion of roughly 119 basis points, suggesting efficient cost management.
Additionally, data on Alphabet’s workforce indicates a cautious approach to hiring, with job openings declining by about 7% quarter over quarter. Post interprets this trend as a sign of disciplined personnel management amid evolving business conditions.
Attention will focus on Alphabet’s guidance for the first quarter, which Post deems critical for investors. He has raised his first-quarter revenue forecast to around $90.1 billion and EPS to approximately $2.56. These figures surpass current Street expectations of $88.8 billion in revenue and $2.54 in EPS, signaling anticipated continued momentum into 2024.
Looking further ahead to 2026, Post has increased his capital expenditure (capex) estimate to about $139 billion, a 14% rise over previous assumptions and notably above the Street’s projection near $119 billion. This upward revision reflects Alphabet’s ongoing investments in infrastructure to support its expanding cloud and AI capabilities, a trend pervasive across the technology sector.
Revisions to Revenue and Other Income Projections
In updating his outlook, Post incorporated higher advertising revenue assumptions motivated by observed stronger holiday advertising payments and favorable foreign exchange rates. He also raised expectations for Alphabet’s "Other Income" category, which now anticipates a mark-to-market gain around $1.3 billion, up from a prior estimate of $0.8 billion. This adjustment factors in potential valuation gains from Alphabet’s equity stakes in companies such as SpaceX and Anthropic.
For the fourth quarter of 2025, Post projects Search revenue to reach close to $61.9 billion, reflecting a 15% year-over-year increase. YouTube ad revenues are expected to grow similarly, approximating $12 billion or 15% year-over-year growth, while Cloud revenue estimates remain steady without revision.
For calendar year 2026, Post slightly increased his net revenue forecast by about 1% to near $400 billion and his operating expenses estimate by approximately 0.4%, reaching $117 billion. He also adjusted his GAAP EPS forecast upward by 1% to $11.22. However, the analyst simultaneously lowered his free cash flow estimate to about $53 billion due to the higher capex outlay, representing a roughly 50% increase year-over-year.
Market Response and Stock Performance
At the time of this report’s publication on Friday, Alphabet’s stock price was slightly down by 0.17%, trading at $337.67. The shares remain near their 52-week high of $342.29, reflecting sustained investor interest amid the company’s positive outlook and evolving cloud and AI strategies.
Key Points
- Analyst Justin Post projects Alphabet will exceed fourth-quarter revenue and EPS consensus estimates driven by strong AI-related product usage and advertising demand.
- Search and YouTube growth forecasts have been increased to around 15%, outpacing Street expectations.
- Operating expenses are rising but are offset by expected operating margin improvements and disciplined hiring practices.
- Capital expenditures forecast for 2026 have been raised substantially to support infrastructure expansion, impacting free cash flow projections.
Risks and Uncertainties
- Actual advertising market conditions during the holiday season may differ, affecting revenue outcomes.
- Increased capital spending may pressure free cash flow and financial flexibility.
- Dependence on market valuations of equity stakes in companies like SpaceX and Anthropic introduces income volatility.
- First-quarter 2024 guidance remains a key uncertainty impacting investor sentiment.
As Alphabet prepares to unveil its quarterly results, investors and analysts alike will closely monitor how the integration of AI and cloud capabilities is translating into revenue growth and profitability. While expanded investments underline the company's forward-looking ambitions, balancing capital expenditures with operational efficiency will be crucial in sustaining its leadership position in the dynamic digital advertising and cloud services markets.