Alphabet earnings preview: Investors eye AI, cloud, and job cuts updates

Alphabet (GOOG, GOOGL) is set to release quarterly earnings after the bell on Tuesday, kicking off a big week for US tech giants that will offer updates on the race for AI dominance, the state of the ad market, and an intensifying regulatory crackdown that coincides with a presidential election.

Investors will be looking for details on the earnings call about the company’s cloud business in addition to insight into Google’s recent layoffs and its artificial intelligence initiatives.

Here’s what Wall Street is expecting for some of Alphabet’s most significant metrics in the company’s fiscal fourth quarter:

  • Revenue, excluding traffic acquisition costs: $70.97 billion expected ($63.12 billion in Q4 2022)

  • Adjusted earnings per share: $1.59 expected ($1.05 in Q4 2022)

  • Cloud revenue: $8.95 billion expected ($7.32 billion in Q4 2022)

  • Ad revenue: $65.8 billion expected ($59.04 billion in Q4 2022)

The report arrives just weeks after Google laid off hundreds of workers across multiple divisions as the company aims to cut expenses and focus on growth areas, including AI. The tech giant joins several of its peers and others across corporate America that have relied on layoffs to boost efficiency in the wake of significant expansions in the COVID era.

Alphabet CEO Sundar Pichai said in a widely covered internal memo earlier this month that more layoffs were likely needed across the entire company in 2024.

Chief among concerns raised by analysts is the rate of Google’s ad growth compared to its main rival, Meta (META), which reports on Thursday. Ad revenues are expected to jump by double digits, in an optimistic break from recent quarters that’s tied to the company integrating new AI tools into its legacy search infrastructure.

Alphabet has described the shift to AI as a profound transition for society. But the technology also presents a broader threat to Google’s flagship search products, since generative AI chatbots change the way people interact with the web, replacing the formulaic search engine with a more natural conversation style for users to access information. For Google, in particular, the disruptions brought on by AI usage are a major area of concern for some analysts.

Google has embarked on a host of efforts to both augment its search tools with AI (Bard and Search Generative Experience) 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.

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 chatbot ChatGPT.

Google’s cloud business is expected to rebound after missing estimates last quarter. The company has been pushing to claim additional market share in the cloud computing market, where it currently sits in third place, behind West Coast competitors Amazon (AMZN) and Microsoft.

Alphabet’s earnings arrive at a moment when the standing of Big Tech’s financial performance has never been more evident on Wall Street. The muscular earnings growth among the tech giants is expected to continue to drive the market rally, as the biggest names from California and Washington state lift up the S&P 500. Alphabet is among an elite handful of tech names that are expected to grow earnings by almost 80% in the first quarter of 2024, according to data from FactSet. The other 496 companies are collectively expected to grow earnings by 0.3%.

But tech’s staggering gains have also drawn heightened scrutiny from regulatory watchdogs. Final arguments and a ruling in the Justice Department’s antitrust lawsuit against Google are expected later this year. And last week the Federal Trade Commission issued orders to five tech and AI companies, including Alphabet, requiring them to provide information regarding recent investments and partnerships tied to generative AI.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.

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