Alphabet Q3 Earnings Preview: AI Developments Take Center Stage as Big Tech Spending Surges
Alphabet Inc. (GOOG, GOOGL) is set to report its Q3 earnings after market close on Tuesday, kicking off a crucial earnings period for U.S. tech giants after a volatile stretch on Wall Street.
Investors will closely examine Alphabet’s progress in monetizing its significant AI investments and its positioning in the competitive digital ad market. Here’s what Wall Street anticipates for some key financial metrics in Alphabet’s fiscal Q3, according to Bloomberg:
Revenue: $86.44 billion expected (up from $76.69 billion in Q3 2023)
Adjusted EPS: $1.83 expected (compared to $1.55 in Q3 2023)
Cloud Revenue: $10.79 billion expected (up from $8.41 billion in Q3 2023)
Ad Revenue: $65.5 billion expected (versus $59.65 billion in Q3 2023)
Last year, Google was viewed as trailing Microsoft (MSFT) in the AI space, especially as Microsoft capitalized on the excitement around AI-driven consumer chatbots. Since then, Alphabet has made strides to strengthen its AI leadership. Earlier this month, CEO Sundar Pichai announced another internal reorganization, reallocating resources to accelerate AI development.
Creating AI-driven technology to automate online shopping or booking travel
In a recent development, Google is reportedly creating AI-driven technology to automate web browsing tasks like online shopping or booking travel, which could see a preview as early as December, according to The Information.
Analysts will look to Alphabet’s update on AI integration to gauge the costs tied to advanced AI technologies, with capital expenditures projected to top $12 billion this quarter.
Google Cloud plays an essential role in AI development
Google Cloud remains a focal point for investors, as it plays an essential role in AI development. Wall Street expects Google Cloud to post revenue near $11 billion, marking a nearly 28% year-over-year increase. CFRA Research analyst Angelo Zino noted, “We believe GOOGL has the best cloud infrastructure for the AI era, enabling a more efficient cost structure compared to other cloud providers and opening new revenue avenues.”
Alphabet’s earnings report comes amid heightened scrutiny. Earlier this month, the U.S. Department of Justice indicated it may push for a breakup of Alphabet to foster competition in the search engine market, with a detailed proposal due by November 20.
Alphabet’s stock has gained 20% year-to-date
Alphabet’s stock has gained 20% year-to-date, placing it in the bottom half of the "Magnificent Seven" tech stocks. While trailing Meta (META) and Nvidia (NVDA), it outperformed Tesla (TSLA) and Microsoft (MSFT), up 14% and 10% respectively. Some bullish analysts see Alphabet’s relative affordability as a strength, with Wedbush analysts commenting, “Although we don’t see the upcoming quarterly report as a major catalyst, Alphabet’s shares are appealing at current valuations. We expect potential for multiple expansion as regulatory risk perceptions stabilize and as investors appreciate the impact of generative AI on Google Search.”