Google Q4 Earnings: Google Cloud Growth to Stay at 30%+? Capital Expenditure Expected to Rise Again, Market Extremely Bullish on Google.

TradingKey - This week, market focus shifts to Google (GOOG) (GOOGL) fourth-quarter 2025 earnings results. Judging by the performance of the options market, most investors are highly confident in this quarter's performance: as of Jan. 29, Google's Class A options were actively traded, with a total daily volume of 4.0718 million contracts. Call options accounted for nearly 70% of total volume, and some traders are even betting that Google will rise to $360 post-earnings.

Throughout 2025, Google's stock price saw a cumulative gain of over 65%, making it one of the top performers among the Magnificent 7.

Google is set to release its Q4 earnings after the close on Feb. 4, ET. Bloomberg analysts expect Q4 revenue to grow 16% year-over-year to $95.08 billion, adjusted net income to rise 19% to $38.55 billion, and GAAP earnings per share to increase 23% to $2.65.

Google’s Second-Largest Growth Engine: Google Cloud Q4 Revenue Projected to Grow 35%

Google Cloud is Google's fastest-growing segment and is viewed as the company's second-largest growth engine. Cloud revenue in Q3 grew 35% year-over-year to $15.15 billion; by the end of the third quarter, backlog rose 43% year-over-year to $155 billion, a net increase of $47 billion from Q2. Due to the surge in backlog, the market expects Google’s cloud business to maintain revenue growth above 30% for a period of time.

Currently, Wall Street generally expects Q4 cloud revenue to grow 35% year-over-year, and Citi (C) analysts believe the growth momentum primarily stems from the Gemini large model, TPUs, and the Q3 cloud business backlog.

Citing internal Google data, The Information noted that Gemini API call requests via Google Cloud have grown rapidly, from approximately 35 billion when Gemini 2.5 was released last March to about 85 billion by August. Currently, Gemini enterprise subscribers have grown to 8 million. Furthermore, compared to the earlier Gemini 1.0 and 1.5 versions which had negative margins, subsequent versions have already achieved positive profit margins.

In terms of proprietary chips, Google reached a contract for chip sales and computing power leasing with Anthropic last October worth over $50 billion, providing 1 million proprietary TPUs to Anthropic, a portion of which is supplied directly to meet the computing power needs of its large models (Claude 4 or Claude 5). For Google, the development of proprietary TPUs is conducive to reducing unit computing costs, and the external provision of these TPUs also proves that its "de-Nvidia-ization" (NVDA) strategy is relatively mature, and Google's IaaS (Infrastructure as a Service) business is expected to enter a golden period.

Additionally, some analysts believe the improvement in cloud margins is also a significant growth driver. The profit margin reached 20.7% in Q2 2025 compared to just 11.3% in the same period last year, and exceeded 23.7% in Q3 2025 compared to 17.1% a year earlier. Although Google Cloud's margin remains lower than that of its peer—Amazon (AMZN) AWS cloud services margin reached 34.6% in Q3, while Microsoft (MSTF) Azure and other cloud services business margins reached 43% in Q1 of fiscal 2026, but Google has been showing steady improvements every quarter.

Tech Giants Collectively Ramp Up Capital Expenditure

Currently, Wall Street generally expects 2026 to be a year for major tech giants to ramp up capital expenditures. Morgan Stanley predicts that the four major U.S. cloud service providers (namely Amazon, Google, Meta (META) and Microsoft) will see their 2026 capital expenditures increase to $454 billion, a year-over-year growth of 26%; the ratio of cloud capital expenditure to revenue will also reach a record high, exceeding 20% in 2026. Currently, TSMC (TSM) has taken the lead in announcing an upward revision of its 2026 capital expenditures, and other giants may follow suit.

Google is no exception. Last October, Google raised its 2025 capital expenditure forecast to $91-$93 billion. Management has stated that capital expenditures in 2026 will further increase compared to 2025, with an expected annual total of approximately $135 billion; however, given the growth momentum of Google Cloud and its TPU business, this could reach as high as $150 billion.

Analysts believe this is because, as a hyperscale cloud service provider, Google's growth is primarily driven by massive investments in computing power, and the current investment cycle has not yet concluded. The growth of Google Cloud is accompanied by ever-increasing capital expenditures.

Currently, the market views the upward revision of Google's capital expenditures as a positive signal, implying that Google will continue to spend heavily on infrastructure; however, this does not mean the market will grant Google total leniency. If spending becomes excessive and Google Cloud's revenue growth fails to fill the gap, or if the progress of the next-generation Gemini model falls short of market expectations and fails to justify the costs, Google's valuation could face a significant correction.

A "Worry-Free" Advertising Business: Market Anticipates Bright Spots

Currently, Google has launched AI search in over 200 countries and regions, supporting more than 40 languages, with monthly active users reaching 2 billion. Google stated that AI search can drive a 10% increase in search volume while enhancing user stickiness. This not only increases Google's advertising placements but also helps retain users, playing a pivotal role in search advertising.

Wall Street expects search advertising revenue to grow by 13.7% year-over-year in Q4. Citi analysts believe that with the launch of new features such as UCP (Unified Commerce Platform) and Direct Offers, and leveraging Google's more than 50 billion product listings and core vertical sectors like Agentic Travel, the agentic commerce segment will also demonstrate new growth momentum.

The market expects Google's AI search to deliver greater advertising efficiency, enabling the company to maintain high-frequency services at a lower unit computing cost than its competitors, thereby more efficiently converting revenue growth into profit growth.

Regarding YouTube advertising, YouTube currently has over 2.7 billion users worldwide. With the continuous growth of YouTube TV and membership subscriptions, Wall Street expects YouTube advertising revenue to grow by 13.5% year-over-year in Q4.