Alphabet Set to Report Double-Digit Q2 Growth; AI Adoption and Rising Costs in Focus
Alphabet expected to report nearly 14% rise in quarterly revenue. AI adoption and rising costs to be key focus areas. Google's advancements in AI to compete with industry leaders.
This growth is primarily driven by the steady demand for its cloud computing services powered by artificial intelligence (AI) and a resurgence in the advertising market.
As the first of the Big Technology companies to release its second-quarter report this season, Alphabet's announcement on Tuesday is highly anticipated. It is expected to shed light on the adoption of AI services and the escalating costs associated with this cutting-edge technology.
In May, Google made significant strides in AI by introducing AI-powered summaries in its search results and enhancing its Gemini AI model to better compete with services offered by OpenAI and Microsoft. Additionally, Google is planning to launch new Pixel devices next month, equipped with advanced AI capabilities. This move comes after Apple unveiled a range of AI features and integration with ChatGPT in its latest iPhones.
Gil Luria, a senior software analyst at D.A. Davidson & Co., emphasised the importance of Alphabet demonstrating its ability to adapt to the new AI landscape. Luria stated, "Investors will be looking for continued success in Search, but also for signs of the company adapting to the new world of AI. 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."
Investors will also closely monitor Alphabet's AI investments. In the first quarter of this year, the company's capital expenditure surged by 91% to $12 billion, causing some concern among investors. However, CEO Sundar Pichai reassured them that the integration of AI was fueling demand for its cloud and search businesses.
According to LSEG data, Alphabet's operating expenses in the second quarter are expected to have risen by over 32% to US$27.57 billion, marking the highest increase in over two years. This significant rise in expenses will undoubtedly raise questions among investors.
Furthermore, there are reports that Alphabet is in talks to acquire cybersecurity startup Wiz for approximately US$23 billion. The potential acquisition and its impact on Alphabet's financial performance will be a topic of interest during the earnings call.
Despite these challenges, Alphabet's core businesses are expected to report robust growth. The improving macro-economic climate has instilled confidence in customers, leading to increased investments in cloud computing and advertising. RBC Capital Markets analyst Brad Erickson noted, "Google search spending still held up fairly well... we think advertisers need to spend as a key offset to inflation."
Media investment firm GroupM has revised its global advertising growth forecast for 2024 to 7.8% in June, up from 5.3% in December. This upward revision is primarily attributed to better-than-expected spending in China and the United States.
Analysts also anticipate a strong performance from YouTube, thanks in part to the expanded monetization features in its TikTok-styled video offering, Shorts.
According to LSEG data, Alphabet's cloud computing sales and advertising revenue for the second quarter are projected to grow by 26.4% and 10.8%, respectively, mirroring the growth rates of the previous two quarters.
Alphabet's peer, Meta Platforms, will release its earnings report next week on Wednesday, July 31, providing further insights into the performance of the tech industry.
Alphabet expected to report nearly 14% rise in quarterly revenue
AI adoption and rising costs to be key focus areas
Google's advancements in AI to compete with industry leaders
Source: REUTERS