20260723-招银国际-2Q26_results_Strong_AI_demand_continues_to_drive_cloud_acceleration_and_solid_core_search_6页_1mb

Alphabet (GOOG US) 2Q26 Summary

Core Content

Alphabet (GOOG US) released its 2Q26 financial results, highlighting strong performance driven by AI demand. The company reported a total revenue growth of 24% YoY to US$119.8bn, slightly exceeding the Visible Alpha (VA) consensus. Operating income increased by 30% YoY to US$40.8bn, aligning with VA expectations. The strong AI momentum significantly accelerated cloud revenue growth and AI-related investments, contributing to a total capex increase of 100% YoY to US$44.9bn, which resulted in a negative free cash flow of US$5.9bn for the quarter. This raised concerns among some investors about short-term cash flow and return on invested capital (ROIC), especially with the recent delay of the Gemini 3.5 Pro launch. However, the firm remains optimistic about its full-stack AI strategy, which is expected to support continued growth in cloud services, core search business, and leadership in the AI model race.

Key Financial Highlights

• Revenue (2Q26): US$119.8bn (+24% YoY)
• Operating Income (2Q26): US$40.8bn (+30% YoY)
• Total Capex (2Q26): US$44.9bn (+100% YoY)
• Free Cash Flow (2Q26): -US$5.9bn
• Google Cloud Revenue (2Q26): US$24.8bn (+82% YoY)
• Google Cloud Backlog (2Q26): US$514bn (+50% QoQ)
• Google Cloud OPM (2Q26): 35.6% (+15ppt YoY)
• AI Search MAUs: Exceeded 1bn
• AI Shopping Ads Relevancy: Increased by 20%
• AI Advertising Tool Adoption: 0.5mn advertisers saw an average of 15% more conversions
• YouTube Ads Revenue (2Q26): US$11.1bn (+13% YoY)

Business Forecasts and Valuation

CMBIGM updated its forecasts and raised its target price for Alphabet. The revised forecasts for FY26-28 show:

CMBIGM raised its target price to US$428.0, based on a 35x FY26E P/E, reflecting confidence in Alphabet's competitive position in search, enterprise AI, and cloud markets. The target PE multiple is a premium to the average P/E of global ad peers (17x).

Valuation Table

Shareholding and Stock Data

• Market Cap: US$4,154,548.4mn
• Avg 3 mths t/o: US$3,525.4mn
• 52w High/Low: US$399.04/US$189.95
• Total Issued Shares: 12,151.0mn

Shareholding Structure

Analyst Ratings and Recommendations

• CMBIGM Rating: BUY
• Target Price: US$428.00 (Previous: US$425.00)
• Up/Downside: 25.2%
• Current Price: US$341.91

Valuation Comparison

Risks

• AI investment may negatively impact short-term earnings and cash flow
• Intensifying competition in AI cloud and large language model (LLM) markets
• Potential slowdown in search revenue growth

Analyst Certification

The research analyst certifies that the views expressed in the report reflect their personal opinions and that there are no conflicts of interest affecting the report's objectivity. The analyst has not traded in the stock within 30 days prior to the report and will not trade within 3 business days after the report is issued.

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over next 12 months
• HOLD: Stock with potential return of +15% to -10% over next 12 months
• SELL: Stock with potential loss of over 10% over next 12 months
• NOT RATED: Stock not rated by CMBIGM
• OUTPERFORM: Industry expected to outperform the relevant market benchmark
• MARKET-PERFORM: Industry expected to perform in-line with the relevant market benchmark
• UNDERPERFORM: Industry expected to underperform the relevant market benchmark

Important Disclosures

• The report is not tailored to individual investors
• Past performance does not guarantee future results
• CMBIGM is not liable for any loss or damage arising from reliance on the report
• The report is intended solely for major US institutional investors
• The information is based on publicly available data and is subject to change
• CMBIGM may have conflicts of interest due to its market-making activities
• The report is not for distribution to non-qualified individuals in the UK and US

Summary

Alphabet's 2Q26 results reflect robust growth in revenue and operating income, driven by strong AI demand and cloud business expansion. Despite concerns over short-term cash flow and AI investment, the firm's full-stack AI approach is expected to sustain its leadership in cloud, search, and AI markets. CMBIGM raised its revenue forecasts for FY26-28 by 2-9% and increased its target price to US$428.0. The report highlights Alphabet's competitive edge and market position, while also outlining key risks related to AI investment, competition, and search revenue growth.