Google Q2 Earnings Beat Estimates, Cloud Revenue Surges, US Tech Stocks Rally

After the market close on July 28 local time, Google's parent company Alphabet released its Q2 2026 earnings, with key data fully beating Wall Street expectations. Driven by sustained high growth in cloud business and steady recovery in advertising revenue, the company's quarterly revenue reached $105.6 billion, up 22% YoY; net profit was $29.8 billion, up 31% YoY, with earnings per share (EPS) of $12.35, more than 10% above the analyst consensus of $11.18. Following the release, Google's stock rose 4.8% in after-hours trading, lifting Nasdaq futures.

Cloud Business Shines, Profitability Continues to Improve

Google Cloud's quarterly revenue reached $31.5 billion, with a staggering 45% YoY growth, maintaining over 40% growth for the fourth consecutive quarter. Among this, the number of customers for AI infrastructure and generative AI solutions exceeded 50,000, including many large enterprise clients. The cloud business's operating margin expanded from 12% in the same period last year to 18%, showing profit improvement from scale effects. CFO Ruth Porat said in the conference call that AI investments have begun to translate into substantial revenue, and expects cloud revenue to accelerate further in the second half of the year.

In comparison, core advertising revenue was $69.8 billion, up 16% YoY, slowing from the previous two quarters but still outperforming competitor Meta's share loss. YouTube ad revenue reached $10.2 billion, up 19% YoY, benefiting from rising demand for short-form video and connected TV ads.

Cost Control Effective, CapEx Remains High

Alphabet's total operating expenses for the quarter were $75.8 billion, up only 12% YoY, significantly below revenue growth. By optimizing headcount and reducing non-core project spending, the company raised its operating margin to 28.2%, the highest in nearly three years. However, capital expenditures reached $18.2 billion this quarter, primarily for data centers and AI chips. Management expects full-year CapEx to remain in the range of $70 billion to $75 billion, slightly above market expectations.

US Tech Stocks Sentiment Boosted, Index Futures Rise

Google's earnings beat quickly ignited market optimism for tech stocks. In after-hours trading, major tech stocks like Amazon, Microsoft, and Apple rose between 1.2% and 2.1%. Nasdaq 100 futures rebounded 0.6%, and S&P 500 futures rose 0.3%, with the market expecting tech stocks to lead the opening higher on Wednesday. Earlier, due to the Fed's rate hold and tariff turmoil, tech stocks had corrected for two consecutive days, and Google's earnings were seen as a key catalyst to reverse the downturn.

Upcoming Earnings: Apple, Meta Next Week

This week marks a busy earnings season for US stocks. Following Google, Apple, Meta Platforms, and Amazon will report results from July 29 to 31. Analysts are generally focused on Apple's iPhone 17 series shipments and services revenue growth, while Meta needs to demonstrate returns on its metaverse and AI investments. Amazon's AWS cloud performance is also worth watching. If all three giants deliver impressive results, tech stocks could regain upward momentum.

Tariff Risks Persist, Geopolitical Uncertainty Weighs on Valuations

Despite the boost from Google's earnings, market concerns over potential trade friction have not dissipated. The U.S. Trade Representative recently indicated possible 15% tariffs on semiconductor production equipment imported from the EU, putting pressure on global tech supply chains. Additionally, the risk of US-China tech decoupling remains, affecting some Chinese tech stocks. Baird analyst Colin Sebastian noted that Google's results prove its moat, but macro risks could limit upside, advising investors to watch future policy directions.

Analyst Ratings: Mostly Buy, Price Targets Raised

Following the earnings release, at least 15 investment banks raised Alphabet's price target. Goldman Sachs increased its target from $215 to $230, citing faster-than-expected cloud growth and search ad resilience. UBS maintained a "Neutral" rating, believing current valuation fully reflects expectations. Wall Street's consensus rating is "Overweight," with an average target of $218, representing about 12% upside from current levels.

Summary: Tech Stocks Get a Boost, But External Risks Remain

Google's better-than-expected earnings injected new momentum into the somewhat tired US tech sector, with the rapid growth of cloud business proving the effectiveness of AI commercialization. However, the global trade environment, interest rate policy, and upcoming earnings from Apple, Meta, etc., will still influence market sentiment. Investors should closely follow subsequent corporate earnings guidance and macro data to seize short- to medium-term trading opportunities.