As Alphabet prepares to announce its first-quarter earnings, the tech giant navigates a challenging landscape of economic uncertainty, regulatory pressures, and stiff competition in the AI sector.
At a Glance
- Positive trends in EPS and sales anticipated, yet investors are wary due to economic fluctuations.
- Alphabet faces heightened scrutiny from ongoing regulatory challenges, including antitrust suits.
- Intense competition in AI and cloud services demands increased capital expenditures.
- Wall Street predicts $89.2 billion in revenue, with earnings of $2.01 per share.
Earnings and Economic Pressures
Alphabet is set to reveal its first-quarter earnings soon, and while analysts are generally positive, they have tempered near-term expectations. Wall Street anticipates the company to report $89.2 billion in revenue and earnings of $2.01 per share.
The financial market’s expectations for Alphabet haven’t been immune to revision by major brokerages, including TD Cowen, UBS, and Scotiabank. These entities reduced their 12-month price targets to $195, $173, and $200, respectively, owing to changing market conditions, yet they continue to rate Alphabet as a Buy.
Alphabet shares have decreased by roughly 19% year-to-date, affected by both legal challenges and broader economic factors. A significant legal weight comes from a recent U.S. court ruling that deemed Google’s ad market practices as maintaining illegal monopolies, intensifying regulatory pressure.
— Zvi Mowshowitz (@TheZvi) November 18, 2024
AI and Cloud Services Competition
The competition in AI and cloud services is intensifying. Investors are keenly aware of this, especially as Alphabet’s AI initiatives face threats from startups and major players alike. Google’s Gemini AI model, integrated into platforms like Search, YouTube, and Cloud, remains a key interest area. Alphabet is increasing its capital expenditures substantially, with a projected capex of $75 billion for 2025, as it contests formidable rivals like Microsoft, Amazon, and Meta for dominance in AI technology.
Cloud services are seen as a future growth area, but they must contend with established competitors such as Amazon and Microsoft. Meanwhile, Google’s foundational ad business remains stable, though concerns about its long-term sustainability linger.
Regulatory and Market Challenges
Alphabet’s legal challenges extend beyond the United States. European regulations, such as the Digital Markets Act, could have a significant impact on the company. Potential antitrust penalties include sharing search and ad indexes or even a company breakup.
As AI-driven search engines from competitors like Perplexity, OpenAI, and Anthropic emerge, Alphabet’s dominance in the search market is being challenged. The increased complexity in Alphabet’s operations is raising fresh investor concerns at a time when the company is already coping with a lack of clear fiscal guidance from its CFO, Anat Ashkenazi.
