Alphabet Inc. delivered stronger-than-expected first-quarter results, reflecting the continued resilience of its core search business.
However, analysts caution that the upbeat numbers may not translate into lasting gains for the company’s stock, given the broader macroeconomic backdrop and a market increasingly swayed by headlines rather than fundamentals.
Shares of Alphabet rose on Friday, with Class A shares gaining 1.7% and Class C shares up 2.3%.
The earnings report showed revenue growth of 12% year-on-year, with YouTube revenue increasing 10%—figures that broadly beat Wall Street expectations.
Yet the bigger question remains: will such a beat be enough?
Market sentiment remains fragile despite strong numbers
Bernstein Research analyst Mark Shmulik noted that while Alphabet “delivered a pristine quarter,” he remains skeptical about the stock’s trajectory.
“It’s too early to do a victory dance,” he wrote in a note to clients.
The concern is not with Alphabet’s fundamentals, which he called solid across the board, but with the broader environment where investor focus is being pulled away by geopolitical headlines and fears of a looming economic slowdown.
Estimates for Alphabet had already been trimmed over the past six weeks due to concerns over rising tariffs and their potential impact on global commerce.
Alphabet Chief Executive Sundar Pichai said on the earnings call that the changes to the “de minimis” exemption would pose a “slight headwind” to ad revenue this year, mainly from the Asia-Pacific region.
This comes at a time when digital advertisers are already grappling with economic uncertainty and shifting consumer behaviour.
Despite the strength in its search and YouTube businesses, Alphabet provided little clarity on how such macro changes could affect performance in the coming quarters.
Rising costs from stock-based compensation, legal battles, and depreciation were also flagged during the earnings call, suggesting headwinds to margin improvement.
Search resilience welcome, but uncertainty clouds ad outlook
UBS Securities acknowledged that Alphabet’s outperformance in search would reassure investors betting on its comparative strength in the digital ad space.
“Heading into (first-quarter) advertising prints, investors were hoping that search shows greater resilience versus the rest of the digital ecosystem against a rougher macro drop,” UBS analysts, including Stephen Ju, wrote in the note.
“So, the beat will be seen as affirming this view.”
UBS said Pichai’s acknowledgement that the de minimis exemption would pose a headwind to ad revenue, is likely to fuel concerns that overall growth in the digital market could see weaker trends from the ongoing quarter onwards.
Still, Alphabet remains committed to its long-term growth plans.
Chief Financial Officer Anat Ashkenazi said the company would continue to target $75 billion in capital expenditures this year, which UBS interpreted as a vote of confidence in the revenue outlook.
She also noted plans to manage costs, including headcount-related expenses, to help offset rising capex-related depreciation.
Analysts raise price targets but say stock will remain under pressure
Bernstein reiterated a market-perform rating on the stock and raised its price target to $185 from $165, suggesting limited upside from current levels.
“No guidance means no need to be conservative or highlight risks beyond what’s on the paper,” Shmulik wrote.
“We wouldn’t be surprised to see profit taking in the name here with a nice recovery in the share price off the bottom over the past few weeks.”
UBS raised its own target slightly to $186 from $173, while maintaining a neutral stance.
“The stock may still remain under pressure,” UBS said, citing regulatory uncertainties and competitive pressures in Alphabet’s core business lines.
As Shmulik of Bernstein concluded, this might be “as good as it gets” for Alphabet in the near term, especially without traditional forward guidance.
In a market jittery over trade, inflation, and interest rates, strong earnings alone may not be enough to sustain momentum.
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