Alphabet and ServiceNow ink major deal

Alphabet Inc. has secured a major five-year deal with ServiceNow, a leading digital workflow platform provider. In addition, the company recently delivered robust top-line performance for Q2 25, reflecting strong momentum across its business segments, including Google Search, YouTube ads, subscriptions, and Google Cloud delivering double-digit growth over the quarter. These results were bolstered by fast paced shipping and positive AI impact on business.

Alphabet Inc. was founded in 2015 as a leading technology conglomerate, headquartered in Mountain View, California, US. It has around 185,720 employees. It is a parent company to Google and its multiple subsidiaries and focuses on advanced cutting-edge technologies and solutions. It is also known for its emphasis on long-term innovation and R&D. The company generates revenue through advertising, subscription fees from platforms like YouTube TV, YouTube Music and Premium, and sales of healthcare-related services and internet services.

Alphabet Inc. operates through three segments namely: Google services (85.6% of Q2 25 revenue), which includes products and services such as Chrome, Google Maps, Google Play, etc., Google Cloud (14.1%), which includes platform services and infrastructure, applications, etc. and Others (0.3%), which serves as a combination of several operating segments that are not independently material. In addition, the company is geographically segmented into: the US (47.7% of Q2 25 revenue), Europe/Middle East/Africa (29.3%), Asia/Pacific (17.1%), and Other Americas (5.9%).

Robust Q2 25 performance

Alphabet Inc. released its Q2 25 results on July 23, 2025, posting a 14% y/y increase in revenue at $96.4bn, driven by 12% y/y growth in Google Services segment revenue, backed by a robust 20% y/y growth in subscriptions, platforms and devices. The Google Cloud segment also witnessed a solid 32% y/y growth in revenue for Q2 25. Operating income experienced a 14% y/y increase, reaching $31.3bn, with a 32.4% margin and net income rose to $28.2bn, with a 19% y/y. These results were backed by strong revenue growth, consistent efficiency in expenses.

Major $1.2bn ServiceNow deal

Alphabet Inc.’s Google Cloud segment secured a $1.2bn deal with a leading digital workflow platform provider- ServiceNow on July 24, 2025. This five-year contract will enable ServiceNow to leverage Google Cloud’s AI, analytics, and cloud solutions to boost workflow automation capacity. The agreement enlists ServiceNow’s platform on Google Cloud Marketplace, widening its deployment options.

This deal is a strategically significant win as it reflects the company’s growing traction in large-scale enterprise adoption, challenging existing peers like Amazon Web Services and Microsoft Azure. It also validates Alphabet’s consistent investment in AI and highlights its ability to drive tangible revenue growth from innovation.

AI drives robust long-term performance

Alphabet has posted a revenue CAGR of 10.8% over FY 21-24, reaching $350bn, driven by AI leadership backed by stronger demand for AI-powered Google Cloud portfolio and robust growth in YouTube and Cloud. Operating income rose at a CAGR of 13.2% to $114bn in FY 24, with margins expanding from 30.6% to 32.6% in FY 24. Net income increased at a CAGR of 9.6% to $100bn in FY 24.

Consistent growth in net income led to an increase in FCF over FY 21-24, reaching $49.7bn from $56.8bn. In addition, cash and cash equivalent rose from $20.9bn to $23.5bn by end-FY 24. Total debt experienced a decline slightly from $28.5bn to $28.1bn. Consequently, its gearing improved from 1.1x in FY 21 to 0.9x in FY 24.

In comparison, Microsoft reported a revenue CAGR of 13.4% to reach $245bn in FY 24. EBIT rose at a CAGR of 16.1% to $109bn in FY 24, with margins expanding from 41.6% in FY 21 to 44.6% in FY 24. Net income increased at 12.9% CAGR over the same period, reaching $88.1bn in FY 24.

Favorable analysts’ outlook

Over the past year, the company's stock has delivered returns of approximately 11.9%. In comparison, Microsoft’s stock has delivered higher returns of 27.5% over the same period.

Alphabet is currently trading at a P/E of 19.3x, based on the FY 25 estimated EPS of $9.9, which is lower than its 3-year historical average of 22.3x and that of Microsoft (P/E of 34.5x). The company is currently trading at an EV/EBIT multiple of 17.2x, based on the estimated EBIT of $130.5bn in FY 25, which is lower than its 3-year historical average of 17.9x and that of Microsoft (26.4x).

Alphabet is monitored by 68 analysts, with 56 having ‘Buy’ ratings and 12 having ‘Hold’ ratings, with an average target price of $216, implying 12.6% upside potential from its current price.

Looking ahead, analysts anticipate revenue CAGR of 11.6% over FY 24-27, reaching $486.7bn in FY 27. In addition, analysts expect an EBIT CAGR of 13.5% to $164.5bn, with margins expanding by 170bp to 33.8% in FY 27. Net income is estimated to rise at a CAGR of 11.9% to $140.4bn in FY 27. Likewise, analysts estimate an EBIT CAGR of 15% and a net profit CAGR of 15.6% for Microsoft.

Overall, the company is poised to benefit from strong growth in AI-driven products and cloud computing, its diverse revenue streams and investments support long-term innovation plans. However, the company is prone to several risks including intense competition in AI, cloud and digital advertising, manufacturing and supply chain disruptions, regulatory scrutiny and antitrust actions across global markets. The company's dependence on advertising revenue makes its earnings vulnerable to economic downturns and privacy policy changes.