Google's financial report will be released tonight! Cloud business is expected to maintain rapid expansion, focusing on AI capital expenditure

Tech giants in the US stock market take turns to release their financial reports, with Google's parent company Alphabet taking the "second leg".

After the market closed on Tuesday Eastern Time, Alphabet is set to disclose its third-quarter financial report, where the company is expected to showcase significant progress in the field of artificial intelligence (AI) and new revenue streams.

Analysts expect key financial indicators for Alphabet in the third quarter to show significant growth:

Revenue: Expected to be $86.44 billion, a year-on-year increase of 12.7% (compared to $76.69 billion in the third quarter of 2023)

Adjusted earnings per share: Expected to be $1.83, a year-on-year increase of 18.1% (compared to $1.55 in the third quarter of 2023)

Cloud revenue: Expected to be $10.79 billion, a year-on-year increase of 28.3% (compared to $8.41 billion in the third quarter of 2023)

Advertising revenue: Expected to be $65.5 billion, a year-on-year increase of 9.8% (compared to $59.65 billion in the third quarter of 2023)

In terms of capital expenditure, analysts state that they will explore the company's progress in AI integration to better understand the costs of developing complex artificial intelligence technologies, with capital expenditures expected to exceed $12 billion this quarter.

Accelerating AI Deployment, Cloud Business Expected to Grow by 28% YoY

Last year, Google has been seen as "Microsoft's pursuer," with the latter being one of the first companies in the tech industry to benefit from the trend of consumers chasing AI chatbots.

In the following quarters, Google has been striving to enhance its leadership position. Earlier this month, Alphabet CEO Sundar Pichai stated in an open letter that there would be internal restructuring and personnel reallocation to prioritize AI development, including integrating the Gemini app team into Google DeepMind.

An earlier article by Wall Street News mentioned that Google is developing AI that can control computers, taking over users' browsers to help consumers with various daily tasks such as research, product purchases, or flight bookings. It is expected to preview this new AI product as early as December.

The cloud business is expected to maintain high growth. Analysts believe that considering the application of Google's cloud business in AI development, this business is becoming increasingly important for investors, with expectations of further expansion. Wall Street predicts that Google's cloud revenue will reach nearly $11 billion, an increase of about 28% compared to the same period last year.

Cfra Research stock analyst Angelo Zino also has a positive view on Google:

"We believe Google has the best cloud infrastructure in the AI era, so it should be able to manage its cost structure better than other cloud service providers and also benefit from a plethora of new revenue opportunities."

Despite External Turmoil, Analysts Remain Bullish

However, it is worth noting that Alphabet's third-quarter financial report comes at a time of turmoil for the company. Earlier this month, the US Department of Justice stated in a court filing that it **may recommend breaking up the company to enhance competition in the search engine market The Department of Justice is expected to provide more detailed documents outlining their proposed remedies by November 20th.

In addition, the presidential race between Trump and Harris has entered a heated stage, with a decline in the returns of large-cap stocks, further increasing uncertainty.

Currently, Alphabet's stock performance ranks lower among the "Big Seven," rising by around 20% year-to-date, far below the astonishing gains of Meta and NVIDIA, but higher than Tesla and Microsoft's 14% and 10% gains. However, some analysts bullish on the stock believe that its relatively affordable price is also an attractive feature.

Wedbush analysts stated:

"While we do not believe the upcoming quarterly report will be a catalyst for Alphabet, we do see attractiveness in Google's stock price at a level below the price-to-earnings ratio. As investors become increasingly confident about regulatory risks and the impact of generative AI on Google search, we believe Alphabet is poised for multiple expansion in the coming quarters and years."