Heading into the third quarter earnings report for GOOGL stock on Oct. 29, many investors are focused on recent antitrust setbacks and artificial intelligence competition. The Q3 earnings call with analysts will mark the debut of Alphabet’s new chief financial officer, Anat Ashkenazi.
Further, she started as Google’s new CFO on July 31. Analysts will look for Ashkenazi’s views on Google stock buybacks; cost cutting/operating margin trajectory; and transparency, such as more disclosure on YouTube financials. Institutional ownership of GOOGL stock has weakened heading into the Q3 earnings report.
Google Stock: Q3 Earnings Due
Meanwhile, analysts estimate Q3 EPS of $1.84, up 19%. Revenue is expected to rise 13% to $86.4 billion. Cloud computing revenue is expected to grow 29% to $10.87 billion.
“While we don’t view the upcoming quarterly report as a likely catalyst for Alphabet, we do think shares are attractive at current levels with shares trading below the market multiple,” said Wedbush analyst Scott Devitt in a report.
Evercore ISI analyst Mark Mahaney holds a similar view.
“With Google, we see a stock that has underperformed intra-quarter, with relatively modest (Wall) Street expectations for Q3,” said Mahaney in a report. “The stock trades at 19 times price-to-earnings and remains close to a trough multiple, implying the potential for near-term upside on positive estimates revisions, even with the long-term overhang associated with the DoJ trials.”
Capital spending for Alphabet stock also will be eyed in the Q3 earnings report amid soaring artificial investments. Google and cloud computing rivals Amazon.com (AMZN) and Microsoft (MSFT) have been building AI-centric data centers.
Meanwhile, Google stock has gained nearly 18% in 2024. The S&P 500 has advanced nearly 22%. After hitting an all-time high in early July, Google stock swooned.
GOOGL Stock: Waymo Momentum
Amid worries over generative AI, there are bright spots in Alphabet’s portfolio. Waymo is widely viewed as the leader in autonomous vehicles.
In October, Waymo closed a $5.6 billion funding round, including Google and previous investors.
Google stock hit a new all-time high of 191.75 on July 10. But Alphabet stock pulled back sharply along with most the Magnificent Seven amid a market rotation out of the technology sector and artificial intelligence plays.
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Amid the 2024 gain of Google stock so far, whether the internet giant is a buy depends on fundamental and technical factors as well as each investor’s own goals, strategy and risk tolerance.
The biggest overhang of Alphabet stock, of course, remains whether the emergence of generative artificial intelligence will be materially damaging to Google’s core internet search business.
Legal woes continue.
A U.S. District Court judge on Oct. 7 ruled that Google must let third-party app stores such as the Epic Games Store onto Google Play, ensure parity of apps across stores, and crucially not require use of Google Play billing. The ruling by U.S. District Judge James Donato came after a jury found Google’s Android a monopoly in app distribution and in-app billing in December 2023. Google said it will appeal.
Google Stock: Apple Search Deal Going Away?
Meanwhile, the Justice Department has told a federal judge that it may ask for a breakup of Google as a possible antitrust remedy.
A federal judge on Aug. 5 ruled that Google has violated antitrust laws by engaging in unfair business tactics to dominate the internet search advertising market. Alphabet’s $20 billion in annual payments to Apple (AAPL), which make Google the default search engine on iPhones, were a central part of the government’s case.
Further, a second phase of the trial must now take place to determine what remedies the federal court will order. In a worst-case scenario, the Apple search deal could be scuttled, an analyst says. A ruling could come by August 2025.
Still, Google will likely appeal.
‘DoubleClick’ Ad Antitrust Case
Meanwhile, another government anti-trust lawsuit versus Google started Sept. 9. Some analysts call it the “DoubleClick trial.” In 2008, Google acquired a leading digital advertising firm DoubleClick for $3.1 billion.
The DoJ claims Google’s dominance of the digital ad market has damaged advertisers and content creators. Testimony wrapped up in late September. Closing arguments are set for Nov. 25.
The antitrust cases versus Google are likely to move forward in either a Harris or Trump administration.
Further, some analysts point to lower trading multiples for GOOGL stock. However, IBD doesn’t put much weight on P/E ratios and other valuation metrics. On the other hand, here are some time-tested trading rules.
Alphabet delivered mixed second quarter financial results for Google stock, with the internet search advertising business and cloud computing unit topping expectations but YouTube missing.
Google’s capital spending surged 91% to $13.18 billion in the quarter. Alphabet says it’s playing the long game with artificial intelligence.
“The risk of underinvesting is dramatically greater than the risk of overinvesting,” said Google Chief Executive Sundar Pichai on Alphabet’s Q2 earnings call.
Google Stock: AI Search Outlook Key
Meanwhile, amid the emergence of generative AI, there’s debate over whether Google stands out as a tech industry leader or lags startup OpenAI. Also, Google stock is among many AI stocks to watch.
Headwinds continue. Artificial intelligence startup OpenAI has unveiled a new large language model (LLM) with improved reasoning capabilities. And, OpenAI continues to add investors.
In addition, Google aims to counter Microsoft’s investment in OpenAI by making its own generative AI tools available to software developers. Google’s large language model is called Gemini.
The impact of generative AI on Google’s core internet search advertising business remains a key issue. Google has embedded its Gemini AI model tools and chatbot AI technology into its search engine.
Google Ramps Up ‘AI Overviews’
What’s more, Google began widely deploying AI Overviews in the U.S. in mid May, with conversational summaries topping links for many search queries. Also, Google plans to expand AI Overview’s availability globally to 1 billion users by year end.
Also, analysts say Google stock is getting a boost from the Performance Max advertising platform. It automates buying across YouTube, internet search, display, Gmail, maps and other applications. Performance Max lets advertisers manage campaigns across all Google ad inventory. Advertisers that use the tools convert more shoppers into buyers, Google says.
In a major reversal, Google plans to keep consumer tracking technology known as “cookies” in Chrome browser. Google will present Chrome users with a prompt to decide whether to turn cookies on or off. Google has taken steps to eliminate cookies for four years, a project called Privacy Sandbox. Digital-advertising companies and regulators worried that Google’s influence would be even greater by getting rid of cookies.
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From Search To Advertising, Will Google’s Big AI Bet Pay Off?
Alphabet Stock: Cloud Computing
Aside from Google’s core internet search advertising business, Wall Street analysts view growth at YouTube and cloud computing as key. Another question is the performance of Google’s hardware business, where it’s battling Apple in smartphones.
Google aims to slow down the growth of TikTok with its own short video platform. How much money Google generates from YouTube Shorts is a key issue for 2024, analysts say. YouTube Shorts now generates roughly 70 billion daily views.
In cloud computing, Google is still the third biggest service provider, behind Amazon.com (AMZN) and Microsoft. Like Amazon Web Services and Microsoft’ Azure business, Google’s cloud unit has upped capital spending targeting the new opportunity in generative AI.
Google’s 2022 acquisition of cybersecurity firm Mandiant for $5.4 billion seems to be paying dividends. Mandiant is part of Google’s cloud-based cybersecurity services.
Further, Alphabet’s money-losing “Other Bets” and Moonshots are company assets that investors should monitor for new developments, according to an IBD report.
Google Stock: Is It A Buy Or Sell Now?
Alphabet stock has turned in good and bad years recently. Shares jumped 65% in 2021 but in 2022 dropped 39%. Despite mounting competition in AI and internet search, Alphabet advanced 58% in 2023.
Also, the Relative Strength Rating of Google stock currently stands at only 56 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better. The relative strength line has tumbled.
Google stock holds an Accumulation/Distribution Rating of D. That institutional ownership rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A+ signifies heavy institutional buying; E means heavy selling. Think of a C grade as neutral.
Further, shares hold an IBD Composite Rating of 87 out of a best possible 99. The best growth stocks have a Composite Rating of 90 or better.
On MarketSurge, Google stock is not in a buy zone as of Oct. 28. Alphabet stock needs to form a proper base to be actionable. Long-time holders could take profits.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
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