Alphabet Q2 Preview: Higher D&A To Weigh On Earnings; AI Monetization Slows But Continues

Summary

• GOOGL's recent underperformance is largely due to slower advertising growth, a relatively muted capex outlook, and higher D&A, which could pressure earnings.
• Despite the gradual pace of AI monetization in advertising, Google Cloud delivered strong growth and continued margin expansion in 1Q.
• The valuation gap between GOOGL and META reflects Meta’s stronger ad growth and more aggressive FY2025 capex, 36% of total revenue, vs 19% for GOOGL.
• Strong growth in capex will lead to higher depreciation on AI infrastructure in the coming quarters, which could weigh on earnings growth and limit the pace of future capex.
• Its valuation has continued to trend lower in FY2025, with a forward non-GAAP P/E of 19x, showing no multiple expansion over the past five years, which suggests the stock remains deeply undervalued.

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