Alphabet earnings: AI, cost cuts take center stage

Investors will eagerly await an update on Alphabet's AI plans when the company reports first quarter earnings after the bell on Tuesday. Read More...

Alphabet (GOOG, GOOGL) is set to report first quarter earnings after the closing bell on Tuesday.

The Google parent’s AI plans will take center stage, with investors also closely watching for updates on the company’s ad business and cost-cutting efforts.

Here’s what analysts are expecting to see out of Alphabet, according to data compiled by Bloomberg:

Over the last few months, Google’s AI capabilities have been questioned by some as the company’s AI chatbot, Bard, has failed to impress.

Meanwhile, Microsoft (MSFT) and its mega-investment in Open AI — which developed ChatGPT — has gained substantial public attention. The tables have begun to turn on Google, as investors have logged concerns over the search giant’s ability to compete in the rapidly-escalating AI race. Worries that have resulted in stock price drops as recently as this month.

Still, Alphabet shares are up just over 20% so far this year, outpacing the Nasdaq’s 14% rise over that period.

The first quarter is expected to be a solid quarter for Google and some analysts say the search giant, for all the noise of the last few months, is set to do well in AI.

Writing in a note to clients on April 23, Raymond James analyst Aaron Kessler said the firm maintains a “positive” view on the company’s cost cutting plans, though notes some investors would perhaps prefer even more aggressive action from the company.

On AI, Kessler wrote: “While early, we believe Google remains well positioned in AI as well.” Kessler maintains an Outperform rating on Alphabet shares.

And with Google’s core Services business trading at 15 times what Kessler forecasts the business will earn next year, the company’s “valuation remains attractive.”

Google, like much of tech, has been cutting costs aggressively this year, with the company announcing plans to cut 12,000 jobs in January.

However, it might still take a moment to see the extent of that cost-cutting, according to Bank of America analysts Justin Post and Joanna Zhao.

“We think 1Q could show cost improvement upside, while in-line search results could be a modest positive for market share concerns (we think street will see better evidence of cost cutting and margin improvement by 2Q),” the firm wrote on April 20, maintaining a Buy rating on the stock.

“We look for a constructive tone on AI integration into search and see Alphabet as a more defensive, self-help stock in the Internet group in 2023 with more relative earnings stability given expense flexibility, healthy margins, and opportunity to support stock with buybacks.”