Alphabet (GOOG, GOOGL) is set to release quarterly earnings after the bell on Thursday, continuing a big week for US tech giants coming off a punishing run on Wall Street. The company is expected to offer updates on the race to turn massive AI investments into new revenue streams and the state of the massive digital ad market.
Alphabet’s report will arrive a day after its advertising rival and Big Tech peer Meta (META) offered a downbeat Q2 forecast and noted that expenses for the year are growing and that it will take some time before AI investments generate significant revenue. Meta stock tumbled as much as 14% following the results.
Wall Street’s reaction underscored the high expectations investors reserve for the tech giants and signals that Google will also be closely scrutinized for any perceived misstep.
Here’s what Wall Street is expecting for some of Alphabet’s most significant metrics in the company’s fiscal first quarter, according to Bloomberg data:
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Revenue, excluding traffic acquisition costs: $66.07 billion expected ($58.07 billion in Q1 2023)
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Adjusted earnings per share: $1.53 expected ($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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Ad revenue: $60.18 billion expected ($54.55 billion in Q1 2023)
Leading up to earnings season, Alphabet is squarely in the middle when it comes to a ranking of “Magnificent Seven” stock performance, gaining 15% so far this year — well ahead of Apple’s (AAPL) and Tesla’s (TSLA) losses but below Meta’s (META) and Nvidia’s (NVDA) sharp percentage gains.
But even tech’s winners are under pressure.
Many of the market’s biggest names are just coming back from a mid-month losing streak. Anxious investors heeded warnings that the Fed may keep interest rates elevated for several more months and perhaps for the rest of the year.
The cooling sentiment on Wall Street raises the stakes for tech earnings this week and the next. Robust corporate updates could further insulate the tech giants from broader interest rate concerns, giving the market another reason to reignite the equity rally. But lackluster showings from Silicon Valley could exacerbate the uncertainty. And with these high-flying companies, even a good showing may not be enough against a standard of near-perfection.
Analysts expect Alphabet’s revenue to increase by more than 13% compared to the same period last year, following up on last quarter’s strong showing and leaving behind a bout of single-digit growth that defined much of 2023.
Google has advanced a host of efforts to both augment its search tools with AI and to offer new, advanced large language models, like Gemini. Analysts will be looking to probe the company’s progress on AI integration and to get a better read on the costs of developing sophisticated AI technologies. Capital expenditures are expected to exceed $10 billion for the quarter.
Last year, Google was widely seen as playing catch up to Microsoft (MSFT), which was among the first in the tech world to reap the cultural excitement around consumer AI chatbots. Microsoft invested in OpenAI, the company behind the popular ChatGPT.
Another pressing issue for Google, a digital advertising juggernaut, is how its development of AI tools will impact ad revenue flowing from search. Google is already embedding new AI tools into its legacy search infrastructure. But in the longer term, chatbots and other consumer AI tools threaten to upend how people get information from the web. For Google, in particular, the disruptions brought on by AI advancement and adoption are a major area of concern for some analysts.
The company is also expected to expand its cloud business, an increasingly important segment to investors because of its use in the development of artificial intelligence. Wall Street projects Google Cloud revenue to register more than $9 billion, boasting a roughly 26% jump from a year ago. Google is working to claim additional cloud market share, where it currently sits in third place behind rivals Amazon (AMZN) and Microsoft.
Alphabet’s report arrives during a turbulent moment for the company.
Last week, CEO Sundar Pichai announced a restructuring of its AI teams to simplify the company’s makeup and improve efficiency. On the same day, Google fired 28 employees who were involved in protests against a project to provide the Israeli government and military with AI and cloud services. More staffers have been terminated since then.
In Pichai’s note to employees announcing the structural changes, he nodded to the protest activities, saying, “This is a business, and not a place to act in a way that disrupts coworkers.”
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.
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