Bank of America Doubles Down on Google Stock Ahead of Earnings
· news
Bank of America Doubles Down on Google Stock Ahead of Earnings
As Alphabet prepares to release its Q2 2026 earnings report on July 22, investors are closely examining every detail. One aspect that has flown under the radar is the $80 billion boost to Q2 operating income from an unlikely source: Alphabet’s stake in Anthropic. This phenomenon first appeared in Q1 2026, where nearly half of Alphabet’s record net income came from marking up equity stakes rather than core business performance.
The numbers are striking: a $62.6 billion profit with only $29.4 billion attributed to Search and Cloud growth. In Q2, the trend is set to continue on an even larger scale due to Anthropic’s valuation nearly tripling between quarters. This discrepancy raises important questions about what these earnings truly represent.
Investors are getting a distorted view of Alphabet’s core business performance, artificially inflated by the value of its stakes in Anthropic and SpaceX. This has significant implications for how analysts and investors interpret these numbers. The estimated $80 billion gain from Anthropic’s valuation revaluation directly flows into operating income. As such, it’s crucial to strip out this line item to get a clean read on Alphabet’s underlying business performance.
In contrast to traditional companies, where operating income is directly tied to revenue growth from sales or services, tech giants like Alphabet have shifted their narrative towards equity valuations driving profits. This underscores the peculiar nature of tech accounting, where investments in other companies significantly impact earnings.
Bank of America’s buy rating and $430 price objective on Alphabet are predicated on its optimistic view of Cloud growth. The bank raised its estimate to 70% for Q2, citing strong indicators from enterprise demand and backlog data pointing towards at least $230 billion in committed revenue over the next eight quarters. While this optimism is understandable given Alphabet’s dominance in Cloud services, it also highlights the risk that investors are placing too much faith in these valuations.
As we await the July 22 earnings report, one thing is clear: the numbers will be scrutinized like never before. The answer to what these earnings truly represent lies in understanding the implications of these valuations on future earnings and how they reflect the broader trend in tech accounting.
Reader Views
- CMColumnist M. Reid · opinion columnist
The Bank of America buy rating on Alphabet stock may be a case of Wall Street chasing valuations rather than fundamentals. While Cloud growth is undoubtedly a crucial aspect of Google's business, investors should be cautious not to get swept up in the hype surrounding Anthropic's skyrocketing valuation. As tech companies increasingly rely on investments and partnerships for revenue streams, it's essential to scrutinize these "phantom profits" that mask underlying weaknesses in their core businesses. A deeper dive into Alphabet's quarterly reports reveals a disturbing trend: where are these profits actually coming from, and what does this say about the long-term viability of Google's business model?
- ADAnalyst D. Park · policy analyst
Bank of America's analysis relies heavily on optimistic Cloud growth estimates, which could be overly dependent on the strength of Anthropic's valuation. While the $80 billion profit from Alphabet's stakes is certainly eye-catching, it's crucial to consider what this means for long-term sustainability. As companies like Anthropic and SpaceX continue to draw attention, investors must be cautious not to conflate equity valuations with organic business performance. A more nuanced analysis would examine how Alphabet's core businesses are adapting to changing market conditions, rather than relying on external factors.
- RJReporter J. Avery · staff reporter
It's time for investors to wake up to the illusion that Alphabet's profits are solely driven by innovation and core business growth. The $80 billion windfall from Anthropic's valuation revaluation is a stark reminder that these tech giants are more akin to investment portfolios than traditional companies, where equity stakes are used as a quick fix to boost earnings. The question remains: how sustainable is this model, and what happens when the bubble bursts?