Alphabet Inc. (GOOGL) is gearing up for its highly anticipated third-quarter earnings report, scheduled to be released after the market closes on Wednesday. Options traders are bracing for a notable price movement, with estimates suggesting a fluctuation of up to 6% by the end of the week. Drawing from last Friday’s closing price, this could place GOOGL’s stock between approximately $303 and $338.
Thus far in 2023, Alphabet’s stock has seen a modest increase of just 2%, retreating from its record highs earlier in the year. The tech giant, much like many AI-related companies, has faced turbulent market conditions, particularly as concerns about industry spending have surged. However, Alphabet continues to showcase robust growth amid these challenges, making its upcoming earnings report a crucial indicator of whether tech giants’ investments in AI are translating into tangible results.
Market Expectations
Analysts from Visible Alpha have set the bar high for Alphabet, forecasting third-quarter revenues of $127.86 billion—a remarkable 25% increase year-over-year. Earnings per share (EPS) are projected at $2.96, a slight uptick of 9 cents compared to previous results.
Particularly noteworthy is the anticipated performance of Google Cloud, which analysts predict will nearly double its revenue to an impressive $29.15 billion. This surge is attributed to the increasing demand for cloud services, which is expected to be the main growth driver for the company.
Sentiment on Wall Street remains predominantly bullish, with 12 out of 13 analysts rating GOOGL as a buy, while the remaining one maintains a neutral stance. The average price target among these analysts is set at $433, suggesting a potential upside of about 35% from its last closing price.
In their analysis, Bank of America analysts have indicated that they will be closely monitoring updates related to Google’s search growth. They have flagged potential pressures stemming from emerging AI competitors, as well as Google’s own AI initiatives. This could lead to volatility in search revenue, a critical component of Alphabet’s overall performance.
Why Alphabet May Evade a Meta-Style Shock
Investors appear to be entering this earnings report with a cautiously optimistic outlook. Following a series of negative developments from Meta Platforms last week, including its first instance of negative free cash flow since 2012, Alphabet seems to have weathered its own challenges better. Analyst Gil Luria from D.A. Davidson noted that Alphabet may have already navigated its potential reckoning, having raised funds and indicated a significant increase in capital expenditures for the upcoming year during its last earnings call.
Additionally, Luria highlighted that co-founders Sergey Brin and Larry Page have relocated from California ahead of a proposed billionaire tax that could necessitate the sale of shares. This strategic move may allow Alphabet to focus on the growth potential driven by its cloud services and AI innovations.
In contrast, Meta has opted to create a new class of non-voting Class C stock to finance its AI ventures, which has resulted in a decline in its stock value. On the same day, while Alphabet’s Class C stock (GOOG) slipped about 1%, it was a far cry from the turmoil Meta is currently enduring.
As Alphabet prepares to report its earnings, all eyes will be on the numbers, with analysts anticipating revenue of $127.86 billion and an EPS of $2.96. The upcoming report could very well serve as a pivotal moment for GOOGL, providing insights into its resilience and growth potential in a rapidly evolving tech landscape.
