[Earnings Preview] Will Google's Alphabet lose to AI competition

The company is attracting market attention for the “current state of artificial intelligence” and “the current state of the advertising market.”

Regarding generative AI, market interest is focused on what Google is currently working on and how far it has progressed in order not to repeat major PR blunders such as when Gemini was announced in February. Also, in order to maintain the scale advantage that supports the success of the company's search business, it is important to maintain awareness among a wide range of customers. Therefore, if the company plans to incorporate generative AI into search services or new plans on how to sell advertisements for the same service, market attention will be drawn.

Regarding the current state of the advertising market, is demand for digital advertising continuing to accelerate? The digital advertising market, which hit bottom in the latter half of 2022, has recovered extremely rapidly, and growth is accelerating quarterly throughout 2023. Has that momentum cooled down? The above points are expected to attract market interest.

24Q1 sales are expected to increase 12.76% from the same period last year to 78.694 billion dollars, and EPS is expected to increase 29.09% from the same period last year to 1.51 dollars
According to Moomoo, the market expects sales of Alphabet 24Q1 to be 78.694 billion dollars, up 12.76% from the same period last year, and EPS to 1.51 dollars, up 29.09% from the same period last year.

74% analysts have bullish ratings, and the average target share price is $167.03
According to Moomoo, the average target stock price presented by analysts is $167.03, which is about 7% higher than the current situation. Of the 39 analysts, 74.36% are bullish and 25.64% recommend neutrality. There are no analysts who recommend being bearish.

The growth rate of the advertising business and cloud business is likely to slow down
An increase in sales and profit is expected for Alphabet's financial results for the fiscal year ending January to 3, but it has been pointed out that stock prices may be affected depending on the results of the advertising business and cloud business.

In particular, the advertising business is expected to increase 10.4% from the same period last year, and the cloud business is expected to increase 25.0%, and growth is expected to slow down from the previous quarter in both cases.

In past financial results announcements, there are examples where stock prices fell drastically when income from these businesses did not reach market expectations. Also, as a concern about profitability, an increase in capital investment associated with the enhancement of AI services has been pointed out, and the hurdle for rising stock prices is high compared to the previous quarter when the profit growth rate was at a high level. In the financial results announcement on the 25th, the focus will be on the growth potential of the advertising business and cloud business.

A bullish view
● Along with the increase in the number of online users and users, digital advertising costs will also increase, and it is expected that Google will continue to be one of its main beneficiaries.
● Due to Android's overwhelming global market share in smartphones, Google can continue to have an advantage in mobile searches.
● The “Gemini” dispute has been taken as an AI risk against Alphabet, but the famous hedge fund investor Bill Ackman believes that Alphabet is ahead in AI competition, and the market underestimates the company's potential, creating an opportunity to buy the company's stock.
● The company integrated Gemini Pro 1.5 into Workspace and announced new GenAI driving functions at the Cloud Next event. This includes a video creation and editing application called Vids, enhancements to Gmail, Sheets, Docs, and Meet, and new pricing options. Workspace is positioned as a competitive option for organizations seeking to adopt generative AI tools.

Bearish view
● Since there is a high degree of dependence on Google and search advertisements, there is almost no distribution of revenue in Alphabet.
● Google's dominant position in online searches is not permanent, and an increasing number of companies and regulatory bodies are objecting to the method by which the company has expanded its leadership.
● ChatGPT's ad-free contract model has brought about an existential crisis in Google search advertising-based revenue, and Alphabet is urging changes in its business strategy to counter Microsoft's productivity tools and Amazon's cloud services.
● Google's stock price is slightly outperforming the market, but delays in generative AI compared to rivals such as AWS and Azure suggest that the difference is widening along with potential reputational damage caused by Gemini, and the company is facing a major threat to the cloud business and long-term prospects in the generative AI area.