Alphabet Stock Is Up 6% This Year. Is It a Buy Ahead of Earnings?

Alphabet is set to release its third-quarter 2026 earnings report on Oct. 28. Here’s Morningstar’s take on what to look for in Alphabet’s earnings and the outlook for its stock.

Key Morningstar Metrics for Alphabet

• Fair Value Estimate
  : $433.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

Alphabet Earnings Release Date

• Wednesday, Oct. 28, 2026, after the close of trading

What to Watch for in Alphabet’s Q3 Earnings

• The most important number will be growth in Google Cloud, as well as the increasing profitability within cloud. In the second quarter, cloud operating margins expanded to north of 35% from 21% a year ago. We are expecting another impressive quarter for growth and profitability.
• We are also keeping an eye on the cloud backlog, which is contracted revenue Alphabet will recognize in its income statement in the coming periods.
• We are looking at how Search performs. The business has held up really well, growing 17% in the second quarter. We will keep a keen eye on how growth changes in this business, as cash flows from Search are helping Alphabet pay for its AI investments.
• Directional commentary on capital expenditures will be important as we think about capex in 2027.

We see Alphabet stock as undervalued, trading well below our $433 per share fair value estimate. We see continued execution on cloud as the key driver in bridging the gap between where the stock trades and our fair value estimate.

The following are excerpts from Morningstar’s company report on Alphabet.

Fair Value Estimate for Alphabet

With its 4-star rating, we believe Alphabet’s stock is moderately undervalued compared with our long-term fair value estimate of $433 per share, which implies a 2026 adjusted price/earnings multiple of 30 times and an enterprise value/adjusted EBITDA multiple of 26 times.

We forecast Alphabet’s top line growing at an 18% compound annual growth rate over the next five years. We view Google Cloud as a key growth driver for Alphabet’s overall business. We project Google Cloud sales to grow 47% annually on average over the next five years as cloud migrations, increased usage of AI, and additional software add-ons all work together to bolster the firm’s cloud sales. We expect Alphabet’s overall operating margins to approach 35% over the next five years, up from 32% in 2025.

Read more about Alphabet’s fair value estimate.

Economic Moat Rating

We believe Alphabet merits a wide moat rating, owing to the intangible assets, network effect, cost advantage, and customer switching costs that permeate a variety of its businesses.

While antitrust pressures and generative search engines may threaten Google Search’s hold on the general search market, we don’t believe either will result in a material deterioration of its excess returns.

We assign YouTube a wide moat, owing to the business’ strong network effect and intangible assets. While the market landscape for YouTube is considerably more competitive than Google Search, we believe the firm’s ability to expand its reach across devices and innovate should allow it to profitably run its platform and generate returns in excess of its cost of capital for the foreseeable future.

We believe Google Cloud Platform merits a wide moat, supported by high customer switching costs and cost advantages. Alphabet’s Android operating system and Google Play enjoy a wide moat stemming from intangible assets and a network effect.

Read more about Alphabet’s economic moat.

Financial Strength

We view Alphabet’s financial position as virtually unassailable. The firm closed 2025 with cash and cash equivalents of $127 billion, more than offsetting its debt balance of $46 billion.

The firm’s advertising business is a cash-generating machine, churning out tens of billions of dollars in free cash flow annually. Alongside advertising, Alphabet is making progress on diversifying its cash generation, with Google Cloud and YouTube subscription sales as additional free cash flow drivers.

Read more about Alphabet’s financial strength.

Risk and Uncertainty

We assign Alphabet an Uncertainty Rating of Medium. This reflects our belief that despite the near-term uncertainty around antitrust regulation and potential competition in the AI-infused search market, Alphabet is well positioned to expand its overall business while maintaining a rock-solid balance sheet.

The firm’s high dependence on user behavior data represents an environmental, social, and governance risk. If it fails to maintain adequate data privacy and security, Google’s advertising business would likely suffer, and users’ trust in the firm’s other products would likely falter.

Read more about Alphabet’s risk and uncertainty.

GOOG Bulls Say

• Alphabet’s core advertising business is deeply entrenched in advertising budgets, allowing the firm to benefit from a secular increase in digital advertising spending
• The firm’s advertising business generates substantial cash flows that it can reinvest in growth areas such as GCP, AI-infused search, and aspirational projects such as Waymo.
• Alphabet has a huge opportunity in the lucrative public cloud space as a key cloud vendor to enterprises looking to digitize their workloads.

GOOG Bears Say

• While Alphabet is seeking to diversify its business away from search, text-based advertising remains the largest contributor to the firm’s top line, creating a concentration risk.
• Alphabet’s continued investments in new, often unproven technologies have been a drag on cash flows.
• Regulators around the world are keying in on Alphabet’s search dominance and could upend the search market through the imposition of deep structural changes in the space.

This article was compiled by Colin Laidley.