Alphabet Inc (NASDAQ:GOOG) is set to report its second quarter results amid what Jefferies analysts describe as a “favorable setup,” with strength in YouTube, steady Cloud growth, and signs of modest advertising upside.
“Q2 setup looks favorable with easier comps and modest ad upside on easing tariffs, though macro headwinds and cautious second-half budgets continue to weigh,” the analysts wrote in a note.
“Ad checks point to a better-than-expected Q2, driven by easing tariff concerns and likely a rebound in spend from players like Temu.”
While Alphabet’s advertising business is expected to show resilience, Jefferies flagged some headwinds tied to AI integration in search.
“Alphabet may be seeing more pressure on ad budgets with some noting rising cost-per-clicks tied to AI Overviews,” the analysts wrote. “YouTube continues to track well,” they added.
Despite some near-term pressures, Jefferies expects profitability to hold steady. They project an EBIT margin of 37.4%, compared to the Street estimate of 38.8%, with ongoing headcount reduction driving operating leverage and offset by rising AI capex build-out and higher cost-to-serve.
Cloud strength
Alphabet’s Cloud business is expected to be a bright spot, the analysts wrote. “We believe Cloud is positioned to benefit from broader sector strength, with increasing Cloud spend intentions,” Jefferies noted, referencing their recent chief information officer survey.
“Google Cloud remains a distant third but is seeing momentum in Tensor Processing Units (TPUs) and developer tools, with growth in Vertex AI.”
Jefferies estimates second-quarter Cloud revenue of $12.95 billion, representing 25% year-over-year growth, slightly below the Street consensus of $13.09 billion and a deceleration from 28% growth in Q1.
“Bullish Q2 cloud checks show strong enterprise and government demand, with AI investment gaining traction across cloud and on-prem,” they wrote. “The OpenAI partnership should support remaining performance obligations, though second-half growth may moderate due to Q2 pull-forward and tariff uncertainty.”
Bullish on long-term position
While concerns persist about AI’s long-term impact on search, Jefferies remains confident in Alphabet’s position.
“Experts remain constructive on Alphabet’s long-term positioning,” the analysts wrote. “AI remains an emerging driver, with material revenue impact more likely in 2026.”
Jefferies repeated its ‘Buy’ rating and $210 price target on the Google parent company, which implies 15% upside from current levels.
Since reporting first-quarter earnings, Alphabet stock has gained 17%, still trailing several Big Tech peers, Jefferies highlighted.
“Alphabet is up 17% since Q1 reported, versus Amazon 23%, Meta 29%, Microsoft 29%, S&P 500 16%, and Nasdaq Composite 24%,” they wrote.