Google parent Alphabet (GOOG, GOOGL) will report its second-quarter earnings after the close on Tuesday, giving Wall Street more insight into the state of the digital advertising market and whether the AI-generated hype is translating into revenue growth. The tech giant is fresh off a stellar first quarter, which included initiating its first-ever dividend of $0.20 per share and announcing that it has authorized $70 billion in share buybacks.
Alphabet shares are up 30% so far this year. Rivals Microsoft (MSFT) and Amazon (AMZN) are up 18% and 22%, respectively, so far this year. All three companies are pouring money into building out generative AI capabilities, investing heavily in data centers that can run the AI models they make available through their cloud-services platforms.
Analysts expect current-quarter revenue of $84.35 billion and earnings per share of $1.85, according to data compiled by Bloomberg, up from the same period last year, when the company reported revenue of $74.6 billion and earnings per share of $1.44.
Wall Street expects advertising revenue to exceed $64.5 billion, up from $58.1 billion last year. This includes year-over-year increases in revenue from Google Search and Other, YouTube advertising, and the Google Network, pointing to a favorable advertising environment. If Alphabet beats expectations, it could also boost shares of rival ad business Meta (META).
Jefferies analyst Brent Till said in a note to investors that he expects ad spending to be in line with or higher than the first quarter, with Google’s paid search growth in the mid-teens.
“Fundamentals remain healthy, including robust advertising spending and potential gains from the Olympics and elections,” Till wrote.
Wedbush analyst Scott Devitt struck a similarly optimistic tone in a note to investors: “Heading into Q2 earnings, we believe conditions remain favorable as our ad surveys and agency commentary point to continued strength in Google Search,” he wrote.
Google CEO Sundar Pichai speaks at the company’s annual developer conference I/O in Mountain View, California, on May 14. (Photo: Glenn Chapman/AFP via Getty Images) (Glenn Chapman via Getty Images)
On the cloud side, Wall Street expects Google Cloud to report revenue of $10.1 billion and operating profit of $982.2 million, up from the $8 billion in revenue and $395 million in operating profit that the company reported in the second quarter of 2023.
In the cloud space, Google still lags behind Amazon and Microsoft, with rivals taking the first and second spots, respectively, but the space is growing, and Alphabet is looking to boost revenue and customer acquisition in the future with its investments in generative AI.
But it remains to be seen when AI will start generating revenue for Google’s cloud business, let alone its advertising division.
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“It’s still too early to expect any benefits from AI. [companies] Still in pilot mode, material AI [revenue] This is likely to occur in 2025-26,” Till wrote.
When it comes to Google’s search business, Devitt said the AI search summary “will drive increased engagement and potentially provide a tailwind for search monetization in the long term.”
Google is still trying to find a foothold with AI Overview, a generative AI feature that appears at the top of the Google search results page. The company rolled out the search feature in May, but users quickly noticed that its answers weren’t always accurate. One now-famous answer told users to put glue in their pizza or eat a rock every day. Google responded by pulling back some of its generative AI features.
Generative AI is sure to be a major theme this earnings season, but it remains to be seen how much it will boost companies’ bottom lines. But Google’s first earnings report among big tech companies should provide some indication of whether the technology is generating meaningful revenue.
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Contact Daniel Howley at dhowley@yahoofinance.com. Follow him on X. Daniel Howley.
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