Google Cloud, YouTube, And Search Drive Big Upside: Goldman Sachs

Goldman Sachs analyst Eric Sheridan maintained a Buy rating on Alphabet (NASDAQ:GOOGL) with a $234 price target on Friday, citing strong Q2 2025 results.

Sheridan highlighted solid momentum in Alphabet's core businesses—Search, YouTube, and Cloud—and noted the company's aggressive AI push. He said the results addressed investor concerns around rising capital expenditures and long-term competitiveness in AI.

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• Search & Other revenue rose 11.7% year-over-year, beating Goldman Sachs and FactSet estimates. Paid clicks grew 4%, accelerating sequentially and easing concerns over core ad performance. Management cited growth in both commercial and general queries, with AI features like Overviews and AI Mode driving higher engagement. AI Mode alone surpassed 100 million monthly active users in the U.S. and India.

• YouTube ad revenue climbed 13%, while the broader Subscriptions, Platforms & Devices segment rose 20%. Executives highlighted Shorts—now averaging 200 billion daily views—and the global expansion of Premium Lite as key growth drivers. Sheridan said these trends underscore YouTube's growing diversification beyond traditional ads.

• Cloud revenue surged 31.7% year-over-year, with operating margins expanding from 11.3% to 20.7%. The business continued to benefit from enterprise adoption of generative AI through Google Workspace and general-purpose compute workloads. While management acknowledged ongoing capacity constraints, they expressed confidence in scaling infrastructure to meet demand.

One area of concern was Alphabet's updated capital expenditure forecast, which was raised to $85 billion for 2025—up 13% from prior guidance. Two-thirds will be allocated to servers, and the rest to data centers, reflecting the company's significant investment in AI infrastructure. Sheridan noted this raised questions about long-term capital intensity and returns but said management remains optimistic about the payoff.

Sheridan highlighted the increasing usage of Gemini, AI agents, and multimodal search as examples of Alphabet’s evolving AI strategy. The company remains confident in transforming Search through a multi-surface AI approach, leveraging its massive user base, rapid iteration cycles, and infrastructure scale—seen as key differentiators in a crowded AI race.

Despite negative sentiment around Alphabet's AI transition, Sheridan said its integration of AI across products, technical infrastructure, and user reach position it well for the future. He also pointed to the Cloud business's momentum and a recent capacity-sharing agreement with OpenAI as further validation.

Two near-term events could shape the company’s trajectory: the expected ruling in the U.S. search antitrust case by late August and the August 20 Pixel launch event, which may reveal deeper AI integration in hardware.

Sheridan raised his forecasts following the strong quarter. He now expects Q3 FY2025 revenue of $99.69 billion, GAAP EBITDA of $38.47 billion, and GAAP EPS of $2.24. Full-year 2025 estimates were increased to $393.87 billion in revenue, $150.97 billion in EBITDA, and $9.75 in EPS. Alphabet still has about $70 billion remaining in its share repurchase program.

While noting some caution around CapEx growth and declining network revenue, Sheridan reaffirmed his Buy rating, citing Alphabet's scale, innovation, and infrastructure investments as key advantages in the AI-driven computing era.

Price Action: GOOGL stock is up 0.59% at $193.29 at last check on Friday.

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