Alphabet earnings should show AI boosts, but Google still faces many clouds

By Jon Swartz

The Google parent company reports earnings after Thursday's closing bell

Contrasting opinions highlight a divergent storyline as Alphabet Inc. nears its first-quarter earnings report on Thursday.

As analysts forecast a rebound in ad spending, ongoing cloud sales and future artificial-intelligence riches, some are also pointing a shaky finger at deepening layoffs, regulatory risks worldwide and economic tailwinds.

"We believe Alphabet is well positioned to capitalize on the digital ad trend, build an enduring cloud business and innovate with AI," Brian White, an analyst at Monness Crespi Hardt, said in a note last week. "However, the regulatory landscape is ominous, the competitive environment perilous, execution spotty, and we believe the darkest days of this economic quagmire are ahead of us." He maintains the stock as neutral.

Analysts polled by FactSet are expecting Alphabet (GOOGL) (GOOG) to report earnings of $1.51 a share on revenue of $78.75 billion.

The mixed bag of viewpoints has led to this general assessment: Wall Street anticipates better ad spending this quarter than last and rising momentum in the second half of the year because of the Summer Olympics and U.S. elections. At the same time, the Google parent company is expected to face stiff competition from Meta Platforms Inc. (META), pockets of sluggish brand ad spending and pedestrian YouTube growth given more video-ad options.

"Based on our agency checks, Google's search advertising is tracking in line to modestly ahead, compared to consensus based on seasonal trends," James Lee, an analyst at Mizuho Securities, said in a note last week.

Jefferies analyst Brett Thill chalks up part of the uncertainty to speculation over a new stock-buyback authorization and a new chief financial officer to succeed longtime CFO Ruth Porat.

Perhaps the greatest risk stems from regulatory issues in the U.S. and Europe, according to Angelo Zino, senior equity analyst at CFRA Research.

A Justice Department lawsuit targeting Google's search-distribution business and another suit targeting its online-ad business are of major concern - not to mention legislation in Europe designed to create a more competitive digital landscape, including the Digital Markets Act and the forthcoming EU AI Act.

There are also increasing competitive pressures, Zino added.

The emergence of an AI-enabled world has the potential to upend Google's search business, with challenges from Microsoft Corp. (MSFT) and its proxy, OpenAI, as well as a possible search platform from Apple Inc. (AAPL).

-Jon Swartz

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04-24-24 1216ET

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