Alphabet Earnings: Can Cloud, AI Progress Make Up for Massive Ad Revenue Slowdown?

Google's parent company, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), is set to unveil its quarterly results today after the market closes, marking one of the week's most anticipated releases of the season.

As the undisputed leader in online advertising, a sector grappling with a slowdown since the year's beginning, Alphabet's results carry significant weight. The tech giant's Q1 performance could reverberate through the broader market, having an impact beyond its own stock price.

The company recently reached a new all-time high of $161.10 on Wednesday, and its stock boasts impressive gains - up 14% year-to-date and a staggering 54% year-over-year.

Can the stock maintain this momentum, or will the earnings report dampen investor confidence?

Should we expect a pleasant surprise from Alphabet's results this Thursday?/h2

The consensus is for EPS of $1.5, down 8.5% on the previous quarter, but up more than 28% year-on-year.

Sales are expected to come in at $78.701 billion, down 8.8% quarter-on-quarter, but up 12.7% on the same quarter last year.

Source: InvestingPro

Furthermore, analysts' EPS forecasts have been raised by 9.83% over the past 90 days, suggesting high expectations and a strong penalty if results disappoint.

However, in this regard, it seems pertinent to point out that Alphabet has exceeded EPS and sales expectations for the last 4 consecutive quarters.

Source: InvestingPro

While this does not guarantee anything for the results expected today, it is nonetheless a factor giving cause for optimism.

Other important details to watch/h2

Beyond EPS and sales data, investors will be particularly interested in advertising revenues, which continue to account for the vast majority of the company's income, notably via Google and YouTube.

In this respect, analysts are forecasting "Google Search and others" advertising revenues of $45 billion, up 11.4%, and YouTube advertising revenues of $7.7 billion, up 15.3%.

Investors will also be paying close attention to the company's comments on its progress in the field of artificial intelligence, particularly with regard to the monetization of its Gemini chatbot.

This is a particularly sensitive point, as this chatbot and others are turning Internet users away from Google search.

The third detail to watch out for in Google's results this Thursday will concern revenues from Google Cloud, Alphabet's most profitable division, which should see sales rise by 25.4% to $9.4 billion, according to analysts.

What are the valuation models and analyst targets for Alphabet shares? /h2

Finally, to properly assess Alphabet's share prospects in the face of the results expected this Thursday, it also seems useful to study the share's valuation, as well as analysts' targets.

As far as valuation is concerned, the InvestingPro Fair Value, which synthesizes 13 recognized models, stands at $152.78, or 5.2% below Wednesday's closing price.

Source: InvestingPro

However, if we exclude the Earnings Power Value model, which could be relevant since it shows a result that differs significantly from the others, Fair Value climbs to $158.44, or 1% above the current price.

Analysts, for their part, are a little more optimistic, but their average target of $167.23 translates into a minimal potential upside of +3.8%.

Source: InvestingPro

Further upside potential for the stock would therefore appear to be limited unless tonight's results come as a positive surprise.

Conclusion/h2

Both analyst estimates and valuation models suggest the company's current share price reflects fair value. This leaves little margin for error, and any deviation from expectations in terms of earnings per share (EPS) or revenue could significantly impact the stock price.

Given the tightrope Alphabet walks tonight, investors are best served by waiting for the official report before reassessing their position. Analyzing the released data will provide a clearer picture of the company's performance and its future outlook.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.