Alphabet is set to report its fourth-quarter earnings on Tuesday, with investors keenly focused on the company’s spending on artificial intelligence (AI) and its cloud growth trajectory, which could provide insights into the company’s ability to maintain its competitive edge. According to estimates compiled by LSEG, Alphabet’s revenue for the quarter is expected to grow by 11.9%, reaching $96.6 billion. However, this marks a deceleration from the previous quarter’s growth rate, signaling a potential slowdown in certain key segments.
The company’s capital expenditure for 2024 is projected to hit $50 billion, with additional investments planned for 2025, primarily aimed at supporting the growth of Google Cloud and AI-driven innovations, including advancements in search functionalities. Alphabet’s commitment to AI comes amid growing competition from both established players like Microsoft and new entrants, such as DeepSeek, a Chinese startup that introduced low-cost AI models last month, further intensifying the race in the AI space.
Google Cloud, a key pillar in Alphabet’s business diversification efforts, is expected to see a 32% increase in revenue for the fourth quarter. This represents a slight deceleration from the 35% growth reported in the previous quarter, which had raised concerns about a potential slowdown in the cloud sector. In fact, Microsoft’s Azure cloud business recently posted a slowdown in growth, prompting investors to wonder if Alphabet’s cloud business might experience similar challenges in the future. As the cloud computing market matures, these growth concerns are becoming increasingly important to monitor.
Alphabet’s core Search and Other business revenue is projected to increase by 11.2% in Q4, down from a 12.2% increase in the third quarter, according to Visible Alpha estimates. The company faces mounting competition from platforms like Amazon and TikTok, which have been steadily chipping away at Google’s dominance in search advertising. The rising prominence of social media in driving ad revenue, along with Amazon’s growing advertising business, has forced Alphabet to adapt its strategies to maintain its leading position in the search ad market.
Political advertising spending related to the upcoming U.S. presidential election may help boost Alphabet’s ad revenue, but broader concerns about the advertising market persist. Meta, for instance, has expressed caution regarding the advertising outlook for the first quarter, citing economic uncertainty and potential global tariffs as factors that could dampen growth. This has raised questions about the long-term health of the advertising sector and whether Alphabet will face similar challenges in the coming months.
Despite these concerns, Alphabet’s stock has performed well, with shares rising about 7% this year following a significant 35% increase in 2024. This positive momentum reflects strong investor interest in AI-related growth, as the company continues to make strides in integrating AI into its services. However, analysts are particularly keen on how Alphabet balances its investments in AI with the ongoing demands of its core cloud computing business. Microsoft’s recent earnings report, which revealed challenges in integrating AI services into its cloud platform without cannibalizing its existing business, will likely serve as a key benchmark for Alphabet in this regard.
As Alphabet gears up to report its earnings, much of the focus will be on how the company’s substantial investments in AI and cloud computing are driving growth, and whether these segments can continue to thrive amid economic uncertainty and intensifying competition. The results may offer crucial insights into Alphabet’s ability to sustain its momentum in a rapidly evolving tech landscape.