Alphabet (GOOG, GOOGL) will report quarterly results after the bell on Thursday, continuing a great week for U.S. tech giants that have had a tough run on Wall Street. The company is expected to provide updates on the race to convert massive AI investments into new revenue streams and the state of the massive digital advertising market.
Alphabet’s report comes a day after its advertising rival and Big Tech rival Meta (META) gave negative guidance for the second quarter, noting that spending is rising for the year and that it will take time to build up AI investments generate significant income. Meta shares fell as much as 14% following the results.
Wall Street’s reaction underscores investors’ high expectations of the tech giants and signals that Google will also be closely scrutinized for perceived missteps.
Here’s what Wall Street expects for some of Alphabet’s key metrics in the company’s first fiscal 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 EPS: $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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Advertising revenue: $60.18 billion expected ($54.55 billion in Q1 2023)
Ahead of earnings season, Alphabet sits squarely in the middle of the Magnificent Seven stocks rankings, having gained 15% so far this year – well ahead of the losses of Apple (AAPL) and Tesla (TSLA), but below those of Meta (META ) and Nvidia’s (NVDA) strong percentage gains.
But even the technology industry winners are under pressure.
Many of the market’s biggest names are coming back from a mid-month dry spell. Worried investors heard warnings that the Fed could keep interest rates high for several more months and perhaps even the rest of the year.
Cooling sentiment on Wall Street raises the stakes for tech gains this week and next. Robust corporate updates could further insulate the tech giants from broader interest rate concerns and give the market another reason to reignite the stock rally. But lackluster numbers from Silicon Valley could add to the uncertainty. And at these high-profile companies, even good performance may not be enough when it comes to near-perfect results.
Analysts expect Alphabet’s revenue to rise more than 13% compared to the same period last year. The company is building on last quarter’s strong performance and leaving behind a phase of single-digit growth that characterized much of 2023.
Google has made numerous efforts to both add AI to its search tools and offer new, advanced large-scale language models like Gemini. Analysts will seek to examine the company’s progress in AI integration and better assess the costs of developing sophisticated AI technologies. Capital spending is expected to exceed $10 billion in the quarter.
Last year, Google was widely seen as playing catch-up to Microsoft (MSFT), which was among the first companies in the tech world to capitalize on the cultural buzz around consumer AI chatbots. Microsoft invested in OpenAI, the company behind the popular ChatGPT.
Another pressing issue for Google, a digital advertising giant, is how the development of AI tools will affect search advertising revenue. Google is already integrating new AI tools into its existing search infrastructure. But in the longer term, chatbots and other consumer AI tools threaten to upend the way people get information from the internet. For Google in particular, the disruption caused 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 as it is used in the development of artificial intelligence. Wall Street expects Google Cloud revenue to be more than $9 billion, up about 26% from last year. Google is working to capture additional cloud market share, where it currently sits in third place behind rivals Amazon (AMZN) and Microsoft.
Alphabet’s report comes at 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 involved in protests against a project to provide AI and cloud services to the Israeli government and military. Since then, additional employees have been laid off.
In Pichai’s memo to employees announcing the structural changes, he gave a nod to protest activity, saying, “This is a business, not a place where you can behave in a way that bothers your colleagues.”
Hamza Shaban is a reporter for Yahoo Finance covering markets and economics. Follow Hamza on Twitter @hshaban.
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