Stabilization of its digital advertising segment, combined with favorable AI trends, have boosted Alphabet’s (GOOG , GOOGL) growth prospects. Investors are expecting this strong trend to remain the case, among other growth developments evidenced the stock’s strong run over the past thirty days.
After gaining 60% over the past year, shares of the Google and YouTube parent have risen 11% year to date, besting the 4% rise in the S&P 500 index. But can digital advertising, which includes YouTube ads, Search ads and Network ads, remain the company's major revenue and profitability driver? This is one of many items the management will be asked when the company reports first quarter fiscal 2024 earnings results after the closing bell Thursday.
Digital advertising is not the only reason investors are excited, however. The stock has also been driven by Google’s recently launched Gemini, its latest large language model, which competes with OpenAI’s ChatGPT. Google’s entry into the generative AI market comes at a time when the market — currently growing at 42% — is projected to reach $1.3 trillion by 2032, according to Bloomberg Intelligence estimates. The bulk of the revenue growth from generative AI, estimated $247 billion by 2032, will come from demand for the infrastructure needed to train AI models.
What's more, estimates suggests that the AI-assisted digital ads business could reach $192 billion in annual revenue by 2032, while revenue from AI servers could hit $134 billion. Google plans to license Gemini to its customers through the Google Cloud platform so customers can leverage them in their own applications. Gemini will also power Google’s ad products, the Chrome browser, and other Google assets, all over the world. In essence Gemini is the future of Google. On Thursday, investors will look for the company to provide clearer details about Gemini’s money-making capabilities.
For the quarter that ended March, Wall Street is looking for the Mountain View, Calif.-based tech giant earn $1.51 per share on revenue of $78.57 billion. This compares to the year-ago quarter when earnings came to $1.17 per share on revenue of $69.79 billion. For the full year, ending in December, earnings are expected to rise 17.4% year over year to $6.40 per share, while full-year revenue of the $321.52 billion would rise 11.3% year over year.
The adjusted full-year earnings estimate has steadily risen since the start of the year, driven by various cost efficiency initiatives the management has undertaken to right-size the business. These include various headcount reductions aimed at boosting profitability and margin expansion. “Through this, we're simplifying our structures to give employees more opportunity to work on our most innovative and important advances and our biggest company priorities, while reducing bureaucracy and layers,” said a Google spokesperson, according to Business Insider.
The ongoing efficiency improvements will be noticeable in this upcoming earnings report. In the fourth quarter, Google delivered a top and bottom line beat, with adjusted EPS of $1.64 per share beating estimates by 4 cents, while Q4 revenue topped forecast by $1 billion to reach $86.31 billion. During the quarter, Google Cloud revenue came to $9.2 billion, rising 25.5% year over year, marking a sequential growth acceleration 3 percentage points.
Notably, after a string of single-digit gains, the 13% Q4 revenue growth marked the second straight quarter of double-digit revenue growth, thanks to ongoing advertising-market recovery. With increased demand for Cloud-supported AI solutions, combined with Gemini powering Google’s ad products, the Chrome browser, and other Google assets, there are plenty of reasons to remain confident in Google’s growth and the company’s long-term strategy.
On Thursday, however, the company must show improvement in the top and bottom lines, while providing upside guidance for the next quarter and full year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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