Alphabet, the parent company of Google, is poised to announce its third-quarter earnings, with strong performance anticipated across key financial metrics. Analysts expect revenues to reach $86.44 billion, marking a 12.7% year-over-year increase. The company's cloud segment is projected to generate $10.79 billion, reflecting a significant 28.3% growth from the previous year.
Despite being one of the "Magnificent Seven" tech giants, Alphabet's stock performance has lagged, partly due to its relatively affordable price point, which some analysts see as an attractive feature. Alphabet's earnings report is expected to highlight advancements in artificial intelligence (AI) and new revenue streams.
Predictions for the quarter include an adjusted earnings per share of $1.83, an 18.1% increase, and advertising revenue anticipated at $65.5 billion, up 9.8% year-over-year. Analysts are also keen to assess Alphabet’s capital expenditures in AI integration, with expectations exceeding $12 billion this quarter.
Google has been striving to enhance its leadership in AI following its initial trailing position behind Microsoft. Recent internal restructuring aims to prioritize AI development by merging teams like Gemini into Google DeepMind. This move is part of Alphabet's strategy to leverage AI for tasks such as research collection, product purchasing, and flight booking, with a preview expected as soon as December.
The cloud business is crucial for Google's AI ambitions, expected to grow nearly 28% to reach close to $11 billion in revenue. Analysts view this segment as increasingly vital, with Google's robust cloud infrastructure offering a competitive edge in cost management and revenue opportunities.
Despite external challenges, including potential regulatory actions by the U.S. Department of Justice suggesting a company breakup to enhance search market competition, and political tensions, analysts remain optimistic about Alphabet's future. The company's stock has appreciated about 20% this year, outperforming Tesla and Microsoft but lagging behind Meta and Nvidia.
Some analysts consider the current stock price, trading below the historical price-to-earnings ratio, as an enticing opportunity. As concerns over regulatory risks and the impact of generative AI on Google's search services ease, there is potential for price-to-earnings ratio expansion in the coming quarters and years.
