Google CEO Sundar Pichai to give significant business update.

Google CEO Sundar Pichai to give significant business update.

Alphabet’s Quarterly Earnings: The Impact of A.I. on Google’s Future


Alphabet, the parent company of Google, is set to release its quarterly earnings report after Tuesday’s market close. This report is highly anticipated due to the rise of generative artificial intelligence (A.I.) tools and Microsoft’s integration of A.I. in its Bing search engine. These developments have raised questions about their impact on Google’s search business and advertising revenue.

According to Bernstein analyst Mark Shmulik, expectations for Alphabet’s earnings are more moderate, providing an opportunity for positive results. However, as Alphabet shares have already risen by approximately 40% this year, there is the possibility of a stock decline. The key questions for investors revolve around the extent to which conversational A.I. chatbots, like Bing Chat and ChatGPT, have drawn away users and advertising from Google Search. Additionally, the impact of this new competition on Google’s spending and profit margins is of significant interest, especially considering the company’s recent efforts to cut costs and lay off over 12,000 employees in early 2023.

Changes in investment priorities have become necessary due to the evolving A.I. landscape. Shmulik highlights that when Google originally shared its comments on margin expansion earlier in the year, the impact of A.I. was not yet a factor. Consequently, the conference call led by Alphabet CEO Sundar Pichai on Tuesday will shed light on the company’s A.I. efforts and strategies.

Analysts predict that Alphabet will report $72.8 billion in revenue for the quarter ending on June 30, reflecting a 4.5% increase compared to the same period last year. This growth rate is notably slower than the 13% increase experienced during the corresponding period previously. The expected earnings per share for the quarter are $1.34.

Online advertising accounts for roughly 80% of Alphabet’s revenue, with Google’s search engine ads being one of the company’s most lucrative services. There is concern amongst analysts and investors that A.I. chatbots, such as Bing Chat, may directly answer user queries and reduce the importance of Google’s search page. In response, Google has launched its own A.I. search tool called Google Bard. Furthermore, Google’s co-founder, Sergey Brin, has reportedly returned to the company to contribute to their A.I. endeavors, emphasizing the seriousness with which the company views the opportunity and threat posed by A.I.

Investors eagerly await more details about these efforts during the conference call. Pichai has previously stated that Google is better positioned for A.I. now than it was during the transition to mobile computing a decade ago. Reports, however, offer mixed signals regarding the impact of A.I. on the search market. Some suggest that the initial excitement around ChatGPT has cooled off, and the effect on Google’s market share has been relatively modest. Shmulik expresses skepticism, stating that he remains cautious about any consumer behavior changes. Nonetheless, with the lowered expectations, the potential for surpassing them has increased.

During the conference call, search revenue and market share will be critical points of interest. Investors will also closely examine Alphabet’s spending plans in response to the A.I. wave. The advanced servers and chips required to power A.I. could drive up Alphabet’s capital expenditures, especially as competition intensifies with cloud providers like Microsoft Azure and Amazon AWS. The race to attract A.I. talent may also increase operating expenses. However, according to Barclays, Google’s deep bench of employees may provide an advantage. They describe Google’s employee army as more efficient in terms of the employee-to-user and scale ratio compared to Meta, TikTok, and Snapchat.

Google’s focus on attracting engineering talent in recent years could pay dividends in terms of shipping new products, outpacing other companies in the consumer internet and software sectors. However, only time will reveal the true outcome of this investment. The release of Alphabet’s quarterly earnings will uncover valuable insights into the impact of A.I. on Google’s future, providing investors with data to assess the company’s performance and determine the trajectory of its stock.