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

Alphabet released its fiscal second-quarter earnings report on April 30. Here’s Morningstar’s take on Alphabet’s earnings and stock.

Key Morningstar Metrics for Alphabet Stock

• Fair Value Estimate
  : USD 433.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Alphabet’s Fiscal Q2 Earnings

Alphabet began 2026 with a very strong set of financial results. The firm’s sales grew 22% to USD 110 billion, with Google Cloud up 63% to USD 20 billion. The firm’s operating margins expanded 220 basis points, with services and cloud operating margins both expanding year over year.

Why it matters: A year ago, Alphabet was trading as if it had lost the artificial intelligence race. What a difference a year, and clear evidence that the firm is generating strong returns from AI, can make.

• The clearest way to see these is in Google Cloud, where sales accelerated sequentially and annually. We estimate the firm’s Gemini API sales are now generating around USD 15 billion in annual revenue, up from a USD 9 billion run rate last quarter.
• The firm’s core search business also continues to benefit from AI. We view AI overviews and AI mode as sound moves to stem customer churn to AI-enabled alternatives, while maintaining user engagement and driving search sales growth of 19% in the quarter.

The bottom line: We increase our fair value estimate for wide-moat Alphabet to USD 433 per share from USD 340. The valuation rise is driven by increased confidence in the firm’s ability to successfully monetize its custom silicon, or TPUs, as well as drive large-scale, profitable usage of its LLM, Gemini.

• We don’t believe we will reach a supply-and-demand equilibrium for AI compute any time soon. This imbalance means that any incremental compute that comes online, via TPUs or Gemini API, meets a buyer willing to pay a pretty penny to acquire it.
• This pricing dynamic showed up in Google Cloud margins, with cloud margins growing 15 points year over year to 33%. Finally, we believe this supply dynamic will further boost TPU sales, as AI labs and other large compute customers seek to gain access to leading-edge compute.

Coming up: We expect Alphabet to release its new LLM, Gemini 3.5, at the Google I/O in May. We are expecting it to be on par with other frontier models from Anthropic and OpenAI.

Fair Value Estimate for Alphabet

With its 4-star rating, we believe Alphabet’s stock is moderately undervalued compared with our long-term fair value estimate of USD 433. This implies a 2026 adjusted price/earnings multiple of 30 times and an enterprise value/adjusted EBITDA multiple of 26 times. We forecast Alphabet’s top line growing at an 18% compound annual growth rate over the next five years. We expect Alphabet’s overall operating margins to approach 35% over the next five years, up from 32% in 2025, with potential improvements more than offsetting the higher depreciation costs stemming from massive capital expenditures on data centers and AI capabilities.

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 businesses that it owns. We assign a wide moat rating to Alphabet’s premier offering, Google Search, as well as to YouTube, Google Cloud Platform, Google Play, and Alphabet’s Android operating system. We believe that Alphabet’s hardware portfolio, which includes the Pixel and Nest group of products, Chromecast, and Fitbit, does not merit an economic moat as a stand-alone business. While Alphabet’s other bets portfolio includes some interesting companies, including Waymo, which is one of the leaders in autonomous vehicles, the segment continues to burn capital, generating returns well below its cost of capital. As a result, we ascribe a no-moat rating to Alphabet’s other bets business.

Read more about Alphabet’s economic moat.

Financial Strength

We view Alphabet’s financial position as virtually unassailable. The firm closed 2025 with cash and cash equivalents of USD 127 billion, more than offsetting its debt balance of USD 46 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. This 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.

We believe Google’s intangible assets and network effects will likely safeguard its dominance in the search space. The firm’s continued investments in AI, which Alphabet can leverage across nearly every business it operates, should be value-accretive. However, we also view them as adding more uncertainty to the range of possible outcomes for Alphabet’s top line and profitability in the future. We do think Google Search’s status as the runaway leader in search could come under pressure, primarily due to the antitrust scrutiny. While we don’t see the firm’s market leadership slipping due to antitrust concerns, this issue adds uncertainty to an otherwise stable business.

The firm’s high dependence on user behavior data represents an environmental, social, and governance risk. If it fails to maintain adequate data privacy and security, Google’s advertising business would likely suffer, and users’ trust in the firm’s other products would likely falter.

Read more about Alphabet’s risk and uncertainty.

GOOGL 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 flows that it can reinvest in growth areas such as GCP, AI-infused search, and aspirational projects such as Waymo.
• Alphabet has a huge opportunity in the lucrative public cloud space as a key cloud vendor to enterprises looking to digitize their workloads.

GOOGL 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 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 by imposing deep structural changes.

This article was compiled by Jillian Moore.