Google parent company Alphabet will report second-quarter results on Tuesday, with artificial intelligence and ad spending the main focus

Google parent Alphabet (GOOG, GOOGL) is set to report fiscal second-quarter results after the close of trading Tuesday, giving Wall Street a better sense of the state of the digital advertising market and whether the buzz around generative AI is translating into revenue growth. The tech giant is coming off an impressive first quarter in which it announced its first dividend of $0.20 a share and authorized a $70 billion share buyback.

Alphabet stock is up 30% since the beginning of the year. Shares of rivals Microsoft (MSFT) and Amazon (AMZN) are up 18% and 22%, respectively, since the beginning of the year. All three companies are pouring money into developing their generative AI capabilities and investing heavily in data centers that can power the AI ​​models they run through their cloud services platforms.

Analysts are expecting earnings of $1.85 per share on revenue of $84.35 billion for the quarter, according to data compiled by Bloomberg. That would be a big jump from the year-earlier period, when the company reported earnings of $1.44 per share on revenue of $74.6 billion.

Wall Street is expecting ad revenue to top $64.5 billion, up from $58.1 billion a year ago. That includes year-over-year gains in Google Search & Other, YouTube ads and Google Network revenue, indicating a positive ad environment. Alphabet’s win could also boost shares of rival ad company Meta (META).

Jefferies analyst Brent Thill wrote in a note to investors that he expects ad spending to remain flat or increase compared to the first quarter, and Google’s paid search to grow by several percent.

“Fundamentals remain sound, with solid ad spending and potential benefits from the Olympics and elections,” Thill wrote.

Wedbush analyst Scott Devitt struck a similarly upbeat tone in a note to investors. “We think the setup remains positive ahead of Q2 results, and our ad research and agency commentary point to continued strength in Google Search,” he wrote.

On the cloud side, Wall Street is expecting Google Cloud to report $10.1 billion in revenue and $982.2 million in operating income. That would be more than the $8 billion in revenue and $395 million in operating income the company reported in the second quarter of 2023.

Google still lags behind Amazon and Microsoft in the cloud space, with its rivals taking first and second place, respectively. The segment continues to grow, and Alphabet is banking on its investments in generative AI to drive revenue and customer acquisition going forward.

However, it is not known when exactly AI will start generating revenue for Google Cloud’s business, let alone the advertising segment.

The story continues

“It is too early to count on the benefits of AI as most (companies) remain in the pilot phase and significant AI (revenue) breakthroughs are more likely in 2025-2026,” Thill wrote.

When it comes to Google’s search business, Devitt says AI-powered search results “have the potential to drive engagement and, over time, become a driver of search monetization.”

Google is still trying to find its place in AI Overview, the generative AI feature that appears at the top of Google search results pages. The company introduced the search feature in May, but users quickly discovered that the answers weren’t always accurate, with familiar answers telling users to put pizza glue or eat a rock every day. Google responded by rolling back some of its generative AI features.

While generative AI will undoubtedly be a big topic this earnings season, it’s unclear how much it will boost corporate profits. However, with Google being the first major tech company to release earnings, that should give us some indication of whether the technology is generating significant revenue or not.

Email Daniel Howley at [email protected]. Follow him on X on @DanielHowley.

For the latest earnings reports and analysis, earnings rumors and expectations, and the company’s earnings news, click here

Read the latest financial and business news from Yahoo Finance