On July 24, 2025, the AI Business stands out, and the outlook for Google's performance remains Bullish.

The parent company of Google, Alphabet, announced its second-quarter performance, with revenue and profit exceeding market expectations. The second quarter revenue reached 96.43 billion USD, an increase of 13.8%; EPS was 2.31 USD, up 22% year-on-year. From the performance delivery feature of Futubull, both exceeded market expectations, while the profit performance was more optimistic than market expectations. After the earnings report, the stock price initially dropped before rising in the overnight market, beginning to repair the large gap left on February 5 of this year, which was created after the Q4 earnings report for fiscal year 2024 last year.

$Alphabet-C(GOOG.US)$ The stock price has underperformed this year, whether from the beginning of the year to the present or in the second quarter. $Nasdaq Composite Index(.IXIC.US)$ (As of July 23, GOOG YLD has risen 0.8%, while the Nasdaq Composite Index has increased 8.9% year-to-date; GOOG's second-quarter rise was 13.7%, compared to a 17.8% rise in the Nasdaq Composite Index). The reason is that during this period, GOOG has underperformed in AI development, but this earnings report shows favorable conditions for GOOG to catch up in the short term.

First of all, the reasons for Google's underperformance are mainly twofold: the lag in the technology level of large AI models and concerns that its core business—advertising in the Search Engine—could be replaced by AI. This time, the performance indicates that the market may reverse these two negative views, which will support the stock price's short-term catch-up.

The search business exceeded market expectations.

Both the search and advertising businesses continued to grow in the second quarter, with search business revenue at 54.19 billion USD, a year-on-year increase of 11.7%, slightly above the market expectation of 54 billion USD. Total advertising revenue grew to 71.34 billion USD, a year-on-year increase of about 10.4%, higher than the market expectation of 69.7 billion USD. Although the search business slightly exceeded market expectations, the growth momentum still lags behind total advertising revenue, indicating that the pressure from AI on the search business is not as significant as imagined. The current applications and influence of AI are indeed tremendous, but complete replacement of the search business does not seem to be trending, considering that current LLM AI does not insert advertisements, and in the short term, businesses still need search engines for digital marketing, which remains a major trend, focusing on traffic and algorithms. This is a significant advantage for a company like Google, which holds YouTube (YT ads up 13% year-on-year) and almost monopolizes web browsers.

The core Business Search Engine can maintain strong performance, likely benefiting mainly from Google's AI search product, AI Overviews. There are currently over 2 billion monthly active users in more than 200 countries and regions, an increase from 1.5 billion monthly active users last quarter. The vast user base has caused the Search Engine to continue to maintain a strong advantage.

Gemini AI is making progress.

The news mainly revolves around the earnings call, where Google CEO Pichai announced several key developments regarding AI that everyone should pay attention to:

1. Token usage doubled: At the I/O conference on May 25, it was announced that the monthly Token consumption across platforms was 480 trillion, and according to the latest operating data, over 980 trillion Tokens are processed each month. The number has doubled in a short period, indicating an overall increase in demand, meaning more people are using AI models, and the reasoning capabilities will continuously strengthen with usage, significantly benefitting long-term development.

2. Monthly active users increased: Gemini's monthly active users rose from 0.4 billion to 0.45 billion.

3. Feature upgrades: Gemini will follow in the footsteps of other large AI models to launch the Deep Search feature, enhancing competitiveness.

AI products regaining competitiveness undoubtedly creates significant assistance for Company Valuation enhancement.

Capital expenditures are increasing.

最後，我們討論近年投資者關注的資本開支增加問題。公司提高全年資本開支至85 billion美元，比此前預期高出10 billion美元。有一點值得留意，資本開支並不是一般的營運開支，是企業擴張業務的必要開支，只要核心業務和增長勢頭出現，資本開支的增加不代表一定是壞事。除以上提及的利好因素外，整個AI行業的ROI問題在大量使用的情況下憂慮舒緩，近來亦有消息指OpenAI 計劃採用Google Cloud 的服務，Google Cloud 今個季度的增長亦加快至32%。在大量的需求支持下，AI基礎建設升級似乎亦是一個大趨勢。這是為什麼這段時間一些半導體股如 $NVIDIA(NVDA.US)$ 、 $Broadcom(AVGO.US)$ 、 $Advanced Micro Devices(AMD.US)$ 和產業鏈相關股份例如 $Vertiv Holdings(VRT.US)$ $Oklo Inc(OKLO.US)$ $GE Vernova(GEV.US)$ 強勢的另一個原因。

公司技術走勢和估值參考

Currently, GOOG's stock price is in a phase of catching up, and the price is beginning to repair the downward gap left on February 5. From a technical trend perspective, this trend will favor the stock price's challenge against historical highs. Moreover, in terms of moving averages, the 50-day and 200-day lines are about to signal a "Golden Cross," which will benefit the stock price's performance in the mid-term. The first resistance level will be at the top of the downward gap at $203.78, while the key resistance level will be at the historical high of $208.21. On the support side, the reference point is the bottom of the large candle on July 21, which is $187. As long as the price stabilizes above this level, the trend of the stock price catching up is expected to be maintained.

In terms of valuation, looking at the company valuation function in Futubull (individual stock -> company -> company valuation), based on yesterday's closing price of $191.51, the latest updated TTM price-to-earnings ratio is 20.42 times, which is lower than the five-year average of 26.43 times, placing it at the bottom of the reasonable range (±1 standard deviation). This reflects that Google's current valuation level is still cheap, and with the core reasons leading to the lagging stock price changing, the valuation should be adjusted conditionally. If it corrects to the five-year average of 26.4 times, the potential increase could be 29%. The calculated reasonable valuation of the stock price based on this valuation model is $247. Of course, this valuation adjustment process is unlikely to happen overnight, but if the positive momentum continues, the market may value GOOG as an important investment theme in the AI development track.

Futu Securities Chief Analyst Tan Zile.

(The author is a licensed person from the Securities and Futures Commission, and neither the author nor related parties hold any financial interests in the suggested stock issuer.)