Alphabet Expected to Report Strong Quarterly Revenue Growth

Google’s parent company, Alphabet, is expected to report a nearly 14% rise in quarterly revenue, marking its fourth consecutive quarter of double-digit growth. This growth is mainly driven by steady demand for its artificial intelligence-powered cloud computing services and a rebound in the advertising market.

Insights from the Second-Quarter Report:

The search giant’s second-quarter report on Tuesday, the first among the Big Technology companies this season, could offer further insights into the uptake of AI services and the rising costs associated with new technology.

AI-Powered Advancements:

At a developer conference in May, Google widely rolled out AI-powered summaries in Search and enhanced its Gemini AI model to better compete with services from OpenAI and Microsoft.

Additionally, Google is set to launch new Pixel devices with AI capabilities next month, moving its unveiling event forward from the typical fall schedule. This follows Apple’s announcement of new AI capabilities and an integration with ChatGPT in the latest iPhones.

Market Expectations:

“Investors will be looking for continued success in Search, but also for signs of the company adapting to the new world of AI,” said Gil Luria, senior software analyst at D.A. Davidson & Co.

“The company will need to show that AI is driving Google Cloud growth, that there are no share losses in Search as users start leaning more on AI chat, and that the new models being built are competitive.”

AI Investments and Operating Expenses:

Alphabet’s AI investments will also be closely monitored. In January-March, the company’s capital expenditure jumped 91% to $12 billion, raising concerns among some investors despite CEO Sundar Pichai’s assurance that AI integrations were boosting demand for its cloud and search businesses. The company’s operating costs in the second quarter ended June likely rose more than 32% to $27.57 billion, according to LSEG data, the highest jump in over two years.

Investors will also be curious about reports that Alphabet is in talks to buy cybersecurity startup Wiz for roughly $23 billion and how this acquisition could impact its bottom line.

Core Business Growth:

Alphabet’s core businesses are expected to report healthy growth as an improving macroeconomic climate encourages customers to invest in cloud computing and advertising.

“Google search spending still held up fairly well … we think advertisers need to spend as a key offset to inflation,” said RBC Capital Markets analyst Brad Erickson.

Global Advertising Growth:

Media investment firm GroupM raised its 2024 global advertising growth forecast to 7.8% in June, up from 5.3% in December, primarily due to better-than-expected spending in China and the United States.

Analysts also expect strong performance on YouTube, thanks partly to the expanded monetization features in its TikTok-style video offering, Shorts.

Financial Projections:

According to LSEG data, Alphabet’s second-quarter cloud computing sales and advertising revenue are expected to grow by 26.4% and 10.8%, respectively, largely similar to the preceding two quarters.

Ad-dependent peer Meta Platforms will report its results next week on Wednesday, July 31.