Alphabet's earnings preview: AI growth and Google Cloud revenue in focus

When is Alphabet due to report?

Alphabet Inc (GOOGL), the parent company of Google, is set to report its second-quarter earnings on Wednesday, 24 July at 6.00am (AEST) after the US markets close.

Alphabet: what to expect

For the second quarter of the year, Alphabet is projected to deliver an earnings per share (EPS) of $1.85, slightly down from the previous quarter’s $1.89, but marking a robust 28% increase compared to the same quarter last year.

• Total revenue: forecasted to hit $84.3 billion, reflecting a 4% increase from the first quarter and a 13% rise from the same period last year.
• Performance track record: over the past four quarters, Alphabet has consistently outperformed expectations, delivering an average upside surprise of 10.62%.

Alphabet EPS from 2023 to present

Key areas to watch in Alphabet’s earnings

1. Google Cloud

• Google Cloud has become a major revenue driver for Alphabet, with revenues more than tripling in the past quarter
• The segment's growth is expected to continue, buoyed by increasing demand and Alphabet's strong AI development focus
• Investors will be keen to see how AI advancements are integrated into Google Cloud services and how this impacts revenue.

2. AI Integration

• AI remains a hot topic, with investors watching closely how Alphabet integrates generative AI into its core search and cloud services
• The focus will be on the profitability of Alphabet's substantial AI investments and the role of AI in maintaining client retention within the ecosystem.

Alphabet Q1 2024 operating income breakdown

Alphabet’s share price dynamics

Alphabet's earnings report comes at a time when the market is shifting away from high-flying tech stocks after a significant rally earlier this year. Up until July 22, Alphabet's stock had surged by 28%. However, the stock has recently pulled back to its 50-day moving average, now sitting 10% below its recent peak.

Investors and analysts are closely watching the key price level of $172, which represents a 10% decline from the recent high of $191. This level is particularly crucial as it intersects with the April peak and a significant support trendline. Should this $172 support level break, the stock could potentially fall towards the $158-$162 range, effectively filling the gap left from previous earnings.

On the upside, near-term resistance is expected around the 50-day moving average at $178, followed by the 20-day moving average at $184. These levels may present challenges for any potential recovery in the stock price.

Alphabet daily chart

Alphabet weekly chart

Alphabet IG sentiment and rating

According to IG sentiment, 93% of clients are holding long positions in Alphabet. However, there has been a notable rise in selling, with 69% of recent transactions being sales.

IG sentiment dashboard