By Yuvraj Malik
(Reuters) – Google parent Alphabet Inc is expected to post a fourth consecutive quarter of double-digit growth, with quarterly sales rising about 14 percent, helped by steady demand for its artificial intelligence-powered cloud computing services and a recovering advertising market.
The search giant’s second-quarter report, released Tuesday, is the first from a major tech company this season and could offer further insight into the adoption of AI services and rising costs associated with the new technology.
At its developer conference in May, Google rolled out its AI-powered summarization feature in search more broadly, and enhanced its Gemini AI model to better compete with services from OpenAI and Microsoft.
Also, following Apple’s June announcement of a host of AI features and ChatGPT integration in its latest iPhones, Google is bringing forward its usual fall launch event and plans to launch new AI-enabled Pixel devices next month.
“Investors will be looking not only at continued success in search but also at signs the company is adapting to the new world of AI,” said Gil Luria, senior software analyst at D.A. Davidson & Co.
“The company needs to show that AI is driving growth for Google Cloud, that it’s not losing search share as users turn to AI chat, and that the new model it’s building is competitive.”
Alphabet’s AI investments will also be in the spotlight: The company’s capital expenditures rose 91% to $12 billion between January and March, spooking some investors despite assurances from CEO Sundar Pichai that AI integration is driving demand for its cloud and search businesses.
LSEG data showed the company’s operating expenses rose more than 32 percent to $27.57 billion in the second quarter to June, the biggest increase in two years.
Investors will also be wondering about reports that Alphabet is in talks to buy cybersecurity startup Wizz for about $23 billion and how that might affect the company’s earnings.
Alphabet’s core business is likely to post healthy growth as improving macroeconomic conditions give customers confidence to invest in cloud computing and spend on advertising.
“Google search spending remains pretty strong and we see it as an important way for advertisers to offset inflation,” said Brad Erickson, an analyst at RBC Capital Markets.
Media investment firm GroupM raised its 2024 global advertising growth forecast to 7.8% in June from 5.3% in December, mainly due to better-than-expected spending in China and the United States.
Analysts also expect YouTube to fare better thanks to expanded monetization features for its TikTok-like “Shorts” video service.
Alphabet’s second-quarter cloud computing sales and advertising revenue are expected to grow 26.4% and 10.8%, respectively, roughly in line with the previous two quarters, according to LSEG data.
Competitor, ad-dependent Meta Platforms, is scheduled to report earnings next week on Wednesday, July 31st.
(Reporting by Yuvraj Malik and Priyanka G in Bengaluru; Editing by Sayantani Ghosh and Singhini Ganguly)
