Alphabet (GOOG, GOOGL) is scheduled to report quarterly results after the bell on Thursday, continuing a critical week for the U.S. tech giant as it emerges from a rebuke on Wall Street. The company is expected to provide updates on the race to turn large-scale AI investments into new revenue streams, as well as the state of the large-scale digital advertising market.
Alphabet’s report says advertising rival and tech giant META has cut its second-quarter outlook, saying expenses are rising this year and that it will take time for AI investments to generate significant returns. The announcement will be made the day after it was pointed out that it would take longer. Meta stock fell by up to 14% following the results.
Wall Street’s reaction underscores the high expectations investors have for tech giants and suggests that Google will also be scrutinized for any missteps.
Here’s what Wall Street expects from some of Alphabet’s most important metrics in its fiscal first quarter, according to Bloomberg data.
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Revenue excluding traffic acquisition costs: Forecasted $66.07 billion ($58.07 billion in Q1 2023)
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Adjusted earnings per share: Expected $1.53 ($1.17 in Q1 2023)
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Cloud revenue: $9.37 billion expected ($7.45 billion in Q1 2023)
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Advertising revenue: $60.18 billion forecast ($54.55 billion in Q1 2023)
Heading into earnings season, Alphabet sits right in the middle of the Magnificent Seven, up 15% so far this year. This far exceeds the losses of Apple (AAPL) and Tesla (TSLA), but falls short of Meta’s stock price. (META) and his Nvidia (NVDA) ratio increased significantly.
But even the winners in the technology industry are under pressure.
Many of the market’s biggest companies have just come back from losing streaks in the middle of the month. Nervous investors heeded warnings that the Fed could continue to raise interest rates for several more months, possibly through the rest of the year.
Cooler sentiment on Wall Street has raised bets on tech companies’ earnings this week and next. Strong corporate results could further distance tech giants from broader interest rate concerns, giving the market new reason to reignite stock gains. But lackluster performance in Silicon Valley could further heighten uncertainty. And for these fast-growing companies, even good performance may not be good enough against near-perfect standards.
Analysts expect Alphabet’s revenue to rise more than 13% year over year, following last quarter’s strong performance and leaving the company with the single-digit growth that characterized much of 2023.
Google has made a number of efforts to power its search tools with AI and deliver new advanced large-scale language models like Gemini. Analysts will be looking at the company’s AI integration progress to better understand the cost of developing advanced AI technology. Capital expenditures for the quarter are expected to exceed $10 billion.
Last year, Google was widely seen as trying to catch up with Microsoft (MSFT), which was early to enjoy the cultural excitement around consumer AI chatbots in the tech industry. Microsoft invested in OpenAI, the company behind the popular ChatGPT.
Another pressing question for digital advertising giant Google is how the development of AI tools will impact advertising revenue from search. Google is already incorporating new AI tools into its traditional search infrastructure. But in the long term, chatbots and other consumer AI tools threaten to fundamentally change the way people obtain information from the web. For Google in particular, the disruption brought about by the advancement and adoption of AI is a major concern for some analysts.
The company is also expected to expand its cloud business, an increasingly important segment for investors because it is used to develop artificial intelligence. Wall Street expects Google Cloud’s revenue to surpass his $9 billion mark, boasting an increase of about 26% year-over-year. Google is working to gain more cloud market share and currently ranks third behind rivals Amazon (AMZN) and Microsoft.
Alphabet’s report arrives at a turbulent time for the company.
Last week, CEO Sundar Pichai announced a reorganization of the AI ​​team to simplify the company’s structure and improve efficiency. On the same day, Google fired 28 employees who took part in protests against a project that provides AI and cloud services to the Israeli government and military. Since then, more staff have been laid off.
In a memo to employees announcing the structural changes, Pichai gave a nod to the protests, saying, “This is a business, and this is not the place for behavior that disrupts our colleagues.”
Hamza Shaban is a reporter for Yahoo Finance, covering markets and economics. Follow Hamza on Twitter @hshaban.
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