Alphabet will face investor scrutiny over its substantial spending on AI when it reports earnings on Tuesday. Revenue growth at the Google parent likely slowed in the holiday quarter due to a deceleration in its advertising and cloud businesses.
Similar to other U.S. tech giants, Alphabet is under increased pressure regarding its capital expenditure after Chinese startup DeepSeek recently launched low-cost AI models that threaten to initiate a price war in the AI industry.
Alphabet's capital expenditure for last year is estimated to have been significant, with additional investments planned for 2025 to support its cloud expansion and AI-driven search features crucial for defending market share and boosting ad revenue.
Google Cloud growth is anticipated to slow down in the fourth quarter, though expectations for the segment remain high.
Revenue from Google's Search and Other business is projected to have increased by 11.2% in the fourth quarter, slightly lower than the previous quarter.
Alphabet's overall revenue is anticipated to grow by 11.9% to $96.6 billion, a slower pace compared to the third quarter.
Alphabet, provider of widely-used services like Search and YouTube, aims to maintain its leadership in the search advertising market amidst rising competition from companies like Amazon and apps such as TikTok.
Despite potentially higher political ad spending during the U.S. Presidential elections benefiting Google in the fourth quarter, concerns persist over the ad market outlook due to increased economic uncertainty.
Expectations are optimistic for Google's cloud business following strong growth in the September quarter due to increased AI investments by businesses.
Alphabet's shares have risen approximately 7% this year, buoyed by investor confidence in its AI initiatives.
Recent worrisome figures from Microsoft have raised concerns about a potential bigger slowdown. Analysts are keen to see if Google can maintain a balance between AI growth and core cloud services, unlike Microsoft's recent performance.
Google Cloud is projected to report a 32% revenue increase in the fourth quarter, outpacing competitors Microsoft and Amazon.