Bank of America Securities expects Alphabet's fourth-quarter revenue and earnings per share to both exceed market expectations, noting that the increase in capital expenditures may become a key variable in this earnings report. Google's parent company, Alphabet, will disclose its fourth-quarter results for the fiscal year 2025 after the market closes on February 4, Eastern Time.
Bank of America analysts have raised their fourth-quarter revenue forecast to $95.9 billion (market expectation: $95.2 billion) and adjusted the earnings per share expectation to $2.65 (market expectation: $2.64). The core factors supporting the better-than-expected performance include: Meta's strong earnings report indicating stability in the fourth-quarter advertising market, and the accelerated usage following the release of Gemini 3, which is expected to drive search business growth to 15%-16% (above the market expectation of 13%). YouTube's growth rate may also reach 14%-15% (market expectation: 13%). Fourth-quarter operating expenses are expected to be $28 billion, a year-on-year increase of 13%, with operating profit margin potentially improving by 119 basis points year-on-year.
Influenced by Meta's significant upward revision of capital expenditure guidance, Bank of America has raised its capital expenditure forecast for Alphabet in 2026 by 14% to $139 billion, significantly higher than the market expectation of $119 billion.
<h2>Fourth-quarter performance expectations raised, advertising business expected to exceed expectations</h2>
Bank of America has raised its revenue expectations for Alphabet's fourth quarter. Specifically, the revenue forecast for the search business has been increased from $61.5 billion to $61.9 billion, representing a year-on-year growth of 15%, with growth rate consistent with the third quarter; YouTube advertising revenue forecast has been raised from $11.8 billion to $12 billion, also reflecting a 15% year-on-year increase; cloud business revenue forecast remains at $16.2 billion, a year-on-year growth of 35%.
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Meta's strong earnings performance and related channel surveys indicate that the overall digital advertising market remains stable in the fourth quarter. Further research indicates that Google's momentum in advertising innovation continues to strengthen, primarily due to the deep integration of the Gemini model within its ecosystem. The search business is benefiting from AI-driven tools such as Performance Max and AI Max, which can more effectively utilize platform user data for precise targeting and attribution analysis. Although new forms of AI search may have some impact on overall query volume and click-through rates, industry data shows a significant improvement in conversion rates, expected to offset potential pressure on traffic.
Regarding YouTube, research shows that its growth trend remains robust, with year-on-year growth in the fourth quarter expected to remain stable or slightly improve, primarily driven by performance advertising spending. Google's continuously expanding generative AI creative tools are lowering the production threshold for video ads, simplifying content creation and deployment processes. Incremental advertisers on YouTube mainly come from small and medium-sized enterprises using Performance Max, which can automatically generate video materials and deploy them directly on the YouTube platform
<h2>Good Cost Control, but Depreciation Expenses Continue to Rise</h2>
Bank of America Securities expects Alphabet's operating expenses in the fourth quarter to be $28 billion, lower than the market expectation of $28.7 billion, representing a year-on-year increase of 13%. The operating profit margin is expected to increase by 119 basis points year-on-year to 39.1%, expanding by 344 basis points quarter-on-quarter; the core services profit margin is expected to increase by 99 basis points year-on-year to 40.0%.
The expense structure shows that depreciation expenses for the quarter are expected to be $6.3 billion, a significant year-on-year increase of 49% and a quarter-on-quarter increase of 7%. Excluding the impact of depreciation and amortization, the year-on-year growth rate of expenses in the fourth quarter is only 5.3%. Recruitment data indicates that the company continues to implement strict cost control, with the average number of job vacancies per quarter decreasing by 7% quarter-on-quarter. The market generally expects the number of employees in the fourth quarter to increase by about 900 people quarter-on-quarter, with a year-on-year growth rate of 4%.
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In addition, other income items may show a one-time positive impact. Bank of America has raised its expectation for other income in the fourth quarter from $800 million to $1.3 billion, mainly reflecting potential gains from the fair value re-evaluation of its holdings in non-public companies such as SpaceX and Anthropic.
<h2>Significant Increase in Capital Expenditure, Accelerated Investment in Cloud Business</h2>
Driven by Meta's significant upward adjustment of its 2026 capital expenditure guidance (to $115 billion - $135 billion), Bank of America Securities has raised its forecast for Alphabet's 2026 capital expenditure by 14% to $139 billion, representing a year-on-year increase of about 50%, and is expected to account for 35% of net revenue. Analysts point out that the company may provide an annual guidance close to $140 billion in the upcoming earnings call, significantly higher than the current market expectation of $119 billion. <img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/d2474be7-7a52-4895-8972-2e0c2f352426.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/d2474be7-7a52-4895-8972-2e0c2f352426.png"/>
Bank of America expects that capital expenditure in the fourth quarter will reach $29.2 billion, a quarter-on-quarter increase of 22% and a year-on-year increase of 105%; during the same period, free cash flow is expected to be $11.7 billion, a year-on-year decrease of 53%, accounting for 12% of net revenue. Despite the continued increase in capital expenditure intensity, considering Google's extensive layout in the AI field and the expansion demand of the cloud business, analysts believe that its capital allocation efficiency is still better than its peers, with internal AI capabilities relying on the TPU system potentially forming a certain cost advantage.
Looking back at previous guidance, Alphabet had already raised its full-year capital expenditure expectation range to $91 billion - $93 billion during the third quarter earnings call in 2025. The company stated that capital expenditures are mainly focused on technological infrastructure, with about 60% invested in servers and the remaining 40% used for data centers and network equipment.
<h2>Upside Potential for Search and Cloud Business in 2026</h2>
Bank of America Securities believes that as the penetration of AI-native formats in Google Search increases, the market may underestimate the growth potential of the search business in 2026, with its upside likely to be realized through higher user engagement, improved conversion rates, and new monetization opportunities.
** In terms of cloud business, the synergy between Gemini 3.0 and TPU is gradually building a differentiated advantage for Google products, which may drive new large contract signings.
On the risk side, the company's valuation is currently at a relatively high level (with a price-to-earnings ratio higher than Microsoft's) and faces potential pressure from the release of new competitive products, including the rapid iteration of large language models and competitors like OpenAI entering the advertising market, which may affect market sentiment. Based on expected earnings in 2027, Alphabet is currently trading at a price-to-earnings ratio of 27 times, higher than the S&amp;P 500 index's 22 times.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9bf18f4c-86b5-4bf2-b216-708e56e8609d.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9bf18f4c-86b5-4bf2-b216-708e56e8609d.png"/> The institution believes that considering the company's expected double-digit revenue growth, continuous expansion of cloud business profit margins, and its ability to efficiently utilize its strong AI assets, the current valuation multiple is reasonable compared to its historical average price-to-earnings ratio of 22 times

Meta Q4 Earnings

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Bank of America Securities expects Google's fourth-quarter revenue and earnings per share to exceed market expectations, driven primarily by a stable advertising market and the Gemini 3.0 boosting accelerated growth in search and YouTube. Meanwhile, influenced by Meta's significant upward revision of capital expenditure guidance, Bank of America has raised its 2026 capital expenditure forecast for Google by 14% to $139 billion, significantly higher than market expectations, with its intensity and allocation efficiency becoming key highlights of the financial report

- Bank of America projects that Alphabet will exceed market expectations for Q4 revenue and earnings per share, with significant capital expenditure adjustments being a critical variable.  
- They have raised revenue forecasts to $95.9 billion, driven by stable ad market conditions and increasing demand in search and YouTube businesses, alongside a projected operating expense of $28 billion.  
- Additionally, capital expenditure for 2026 is anticipated to be $139 billion, significantly above market estimates, indicating confidence in growth driven by advancements in AI and cloud services.

Google Earnings Preview: Performance Likely to Exceed Expectations, Capital Expenditure Guidance is the Biggest Highlight