MW Alphabet's earnings will probably be fine, analysts say, but it faces this threat to its core business
By Bill Peters
Earnings Watch: Tesla also reports results this week, along with Mattel, Hasbro and Coca-Cola, as Trump policies remain top of mind
Markets, executives and consumers are still trying to figure out the impact of tariffs on prices and the economy. This week, they'll get an update on the other main theme of second-quarter earnings, artificial intelligence, when Google parent Alphabet Inc. reports results on Wednesday.
Despite the broader fretting over the consumer backdrop, Alphabet (GOOGL) $(GOOG.UK)$, like the rest of big tech, is still shoveling billions into AI development and infrastructure. But the search giant's results arrive as the company and some of its Magnificent Seven peers - like Apple Inc. $(AAPL)$ and Tesla Inc., the latter of which also reports Wednesday - stare down their own individual issues related to the AI race and overall demand.
Analysts still expect a solid second quarter from Alphabet. But others say AI technology now poses a deeper threat to Alphabet's core search business, amid a proliferation of AI-backed chatbot alternatives, and they say the search giant's size remains a regulatory lightning rod.
Truist analyst Youssef Squali said in a note this month that at least for the second quarter, search demand was likely strong despite those concerns, with a solid showing across YouTube and the company's cloud business.
"Concerns over AI evolution in Search (and regulatory pressures to a lesser degree) have weighed on [Alphabet]," he said. However, he added: "we believe that current valuation reflects much of those concerns, and that AI Search remains Google's war to lose."
Still, he said, the company faced tougher comparisons to last year, when ad revenue from mega discounters Shein and Temu was higher. President Donald Trump's efforts to remold global trade through higher taxes on imports were also "causing a slight headwind to the ads business for the remainder of the year."
More bearish investors, BofA analysts noted last month, say AI-powered chatbots like OpenAI's ChatGPT and Anthropic's Claude give people more ways beyond traditional search engines to look up information. That impact, the analyst said, "could show up in near-term click results."
And they say Alphabet faces questions about what the company might look like in the future, after losing some antitrust cases, and questions about its ability to make money off of the AI overviews that appear in search results. Then there were concerns about whether management could be more transparent on its multi-year plans and more aggressive defending the company's position in the tech world.
The optimists, however, noted that Google is still the default option for search and was sitting on a mountain of first-party data, and said its deeper relationships with publishers gave it an advantage over AI platforms that depended on scraping the internet. They said the businesses outside of search - like its cloud segment, YouTube and Waymo - were underappreciated, and that consumer behavior "still aligns with search listings." Google makes much of its money through ads.
Following a bumpy ride of a year marked by a trade war, the rise of Deepseek, and Alphabet's own issues, shares have wobbled. Currently, the stock is down around 2% so far this year.
Alphabet's results arrive as more analysts focus on the massive costs of AI spending, and who can eventually profit the most from it. Concerns endure about the technology's impact on the way people work, the strain it could put on the power grid, and its potential to further pollute the internet with misinformation. But it has attracted greater interest from the U.S. government, seeking to ward off competition from China.
Shares of Tesla $(TSLA)$, meanwhile, have fallen around 18% so far this year, amid friction between Trump and Chief Executive Elon Musk, concerns about electric-vehicle demand overall, and concerns about whether Musk can balance running his companies, his efforts to fund his own AI ventures, and his involvements in politics, including his announcement this month that he would form a new political party.
EV demand has faced pressure as early adoption runs its course, competition intensifies from China, and concerns remain about the limitations of the nation's charging network and cost-of-living increases that have delayed car purchases. Sales of new EVs fell year over year in the second quarter, but were up from the first quarter, according to Cox Automotive.
Stephanie Valdez Streaty, a senior analyst at Cox, said the increase from Q1, "may well be the start of a rush ahead of the federal incentive phase-out, offering a short-term boost in an otherwise uncertain landscape." Those incentives end in September, making the second half of the year a "critical test of EV demand," she said.
Tesla's second-quarter deliveries weren't as bad as some investors feared. But as investors, and Tesla, start to focus more on the rollout of robotaxis, competition on that front is heating up. Some senior-level staff are reportedly departing. There are concerns about copper tariffs. Questions about the timing of Tesla's shareholder meeting, amid concerns about transparency, have added to the drama.
But Baird analysts said in a note last week that Musk's adventures in politics overshadowed broader opportunities.
"Headlines regarding Musk's political activities have shifted attention away from other initiatives which we believe may be material contributors to the P&L longer term," they said.
"Among these are the Tesla Semi (we model first deliveries in Q4), expansion of robotaxi service area, and developments on the competitive front in robotics."
This week in earnings
After the big banks reported last week, second-quarter earnings get busier this week, as investors try to get a firmer sense of the Trump administration's impact on the economy.
Prices rose in June. But while the impact of new tariffs may have filtered into prices for clothing, shoes, furniture, appliances and toys, the effects have yet to become more widespread. However, the steepest of Trump's nation-specific duties have largely been on pause through the spring and summer. And it could take time for consumers to feel the effects of the U.S.' trade negotiations, as retailers cut expenses elsewhere or try to get their suppliers to eat some of the extra tariff-related costs.
Still, as more companies get ready to report results, analysts haven't exactly stopped worrying.
General Motors Co. (GM) reports this week, as analysts continue to worry about over how much more expensive it will get to secure car parts as the trade war continues. Railroad giants CSX Corp. $(CSX.AU)$ and Union Pacific Corp. (UNP) also report, as investors watch for any drop-off, or surge, in shipping activity, as businesses recalibrate their inventories or try to stock up in advance to avoid heftier import taxes.
Results are due as well from aerospace and defense contractors General Dynamics Corp. (GD), RTX Corp. (RTX) and Lockheed Martin Corp. (LMT), as conflicts escalate abroad. And Ugg and Hoka maker Deckers Outdoor Corp. (DECK) reports as well, after it said in May that it would not offer a full-year outlook due to "macroeconomic uncertainty related to evolving global trade policies."
Elsewhere, IBM $(IBM)$ and Intel Corp. $(INTC)$ report. So do $Capital One Financial Corp(COF-N)$. $(COF)$ AT&T, Inc. $(T)$, D.R. Horton. (DHI) and Southwest Airlines Co. (LUV). Boston Beer Co., Inc. $(SAM.AU)$ also reports.
The calls to put on your calendar
Mattel, Hasbro: Hasbro, Inc. and Mattel Inc. report quarterly results on Wednesday.
Some toymakers have warned that higher tariffs on imports could be devastating for the industry. Tariffs, at least on China - Trump's main target in the trade war - aren't as big an issue for Mattel and Hasbro, which as larger companies have more resources to shuffle around production.
Still, Mattel $(MAT.AU)$, in May, said it would raise prices where needed and try to depend less on China for manufacturing. Hasbro $(HAS.UK)$, in April, said it could cut costs and lean on its "Wizards of the Coast" gaming segment - which includes the Dungeons & Dragons and Magic: The Gathering role-playing games - to cushion the blow from tariffs. As markets more-or-less shrug off Trump's chest-thumping on trade, analysts will see if the two toy-industry giants relax or otherwise change course as well.
Ahead of the results, BofA analysts said Hasbro's second-quarter could end up being more profitable than Wall Street expects, thanks in part to the popularity of the Final Fantasy edition of its popular Magic: The Gathering.
For Mattel, they said retailers were more cautious about buying its toys, and said spending on advertising and digital-gaming investments would also pressure profits. But they said sales of things related to the "Jurassic World: Rebirth" movie would help the company, and they saw "continued momentum" in Hot Wheels toys.
The numbers to watch
Food and drink sales: Higher prices have kept more people away from restaurants. Meanwhile, some of the biggest companies that sell cereal and snacks in grocery stores are retrenching, as they deal with inflation, competition and weight-loss drugs.
The Coca-Cola Co. (KO) reports results this week, after Trump said the soda-maker had "agreed" to use real cane sugar in its namesake soda in the U.S. Coca-Cola, in response, didn't directly confirm that statement, but said more details "on new innovative offerings" were forthcoming.
Egg producer Cal-Maine Foods, Inc. reports, as egg prices, once a symbol for consumer struggles with higher prices, begin to ease. We'll also get reports from Keurig Dr Pepper, Inc. (KDP), Domino's Pizza Inc. $(DPZ)$ and Chipotle Mexican Grill, Inc. $(CMG.AU)$.
-Bill Peters
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July 20, 2025 10:00 ET (14:00 GMT)
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