Alphabet Q2 Earnings Preview: AI Developments, Advertising and Cloud Computing as Key Focus

$Alphabet(GOOGL)$   is set to release its Q2 earnings report on July 23, investors will focus on AI developments, capital spending plans, and ad spending in second-quarter. Google stock has climbed 27% in 2024 as investor fervor over generative artificial intelligence drives big gains in technology companies.

Consensus Estimates

~Alphabet is expected to post quarterly earnings of $1.84 per share in the second quarter of 2024, which represents a year-over-year change of 27.71%.

~Revenues are expected to be $84.29 billion, up 12.98% from the year-ago quarter.

Alphabet Eyeing Big Acquisition

Alphabet recently decided not to pursue a takeover of online marketing software company $HubSpot(HUBS)$  . However, Alphabet now is eyeing cybersecurity startup Wiz for roughly $23 billion, in a deal that would represent the technology giant's biggest acquisition ever.

The deal, being funded mostly in cash, could come together soon, according to Reuters. Wiz, founded in Israel and now headquartered in New York, is one of the fastest-growing software startups globally, providing cloud-based cybersecurity solutions with real-time threat detection and responses powered by artificial intelligence. This deal could boost Google's cloud computing business.

“This deal marks a significant milestone in the cybersecurity exit landscape, and a strategic move by Alphabet demonstrating Google’s conviction to fortify its cloud security offerings,” said Barmak Meftah, co-founder and general partner at Ballistic Ventures, a cybersecurity-focused VC firm.

Alphabet AI Developments

Amid the emergence of generative AI, there's debate over whether Google stands out as a tech industry leader or lags startup OpenAI. Also, Google stock is among many AI stocks to watch.

One big question for Alphabet's search business: how will integrating chatbot AI technology into internet search queries impact advertising revenue? Google has embeded its Gemini AI model tools directly into its search engine.

In addition, Google aims to counter $Microsoft(MSFT)$   's investment in OpenAI by making its own generative AI tools available to software developers. Google's large language model (LLM) is called Gemini.

At Google Marketing Live 2024 in May, the company introduced new products and features for advertisers that include ad placement across the new "AI Overviews," formerly Search Generative Experience, format.

Alphabet’s YouTube and cloud computing

Aside from Google's core internet search advertising business, Wall Street analysts view growth at YouTube and cloud computing as key.

Google aims to slow down the growth of TikTok with its own short video platform. How much money Google generates from YouTube Shorts is a key issue for 2024, analysts say. YouTube Shorts now generates roughly 70 billion daily views.

In cloud computing, Google is still the third biggest service provider, behind $Amazon.com(AMZN)$   and $Microsoft(MSFT)$  . Like Amazon Web Services and Microsoft' Azure business, Google's cloud unit has upped capital spending targeting the new opportunity in generative AI.

In addition, Google's cloud-computing unit claims to be working with 70% of generative AI startups. Also, Google's cloud unit is developing close ties with $Salesforce(CRM.US)$, one of the biggest enterprise software makers.

What do analysts think of Alphabet?

Wedbush’s Dan Ives in a fresh note named Alphabet as one of the stocks that can benefit from the AI boom.

Bank of America Securities raised their price objective on Alphabet stock ahead of the tech giant’s forthcoming Q2 earnings report, saying AI search improvements and headcount measures are “likely to drive upside.”

“We remain positive on growing AI integrations across Google’s ecosystem and think a broader rollout of AI overviews will help drive higher activity in the core search business,” analysts at Bank of America Securities highlighted.

“AI use poses a long-term competitive risk, but in the near-term, we think revenue upside from AI driven monetization improvements will be a key 2Q takeaway.”

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