AI and cloud in focus, regulatory concerns grow

Google parent company Alphabet (GOOG, GOOGL) will report its third-quarter earnings after the bell on Tuesday, giving Wall Street its first big look at the health of the digital advertising market for the quarter. The report will also provide fresh insights into whether Google’s recent AI advancements are driving revenue for the company’s cloud and enterprise businesses.

The announcement comes as Google is battling two antitrust suits filed by the Department of Justice accusing the company of abusing its power and distorting competition in the online search and digital advertising markets.

Revenue excluding traffic acquisition costs for the third quarter is expected to come in at $63 billion, a 10% jump from the same time last year when the company brought in $57.3 billion. Analysts are also expecting adjusted earnings per share of $1.44, according to data compiled by Bloomberg.

Google CEO Sundar Pichai speaks at the Google I/O conference in Mountain View, Calif., Tuesday, May 8, 2018. (AP Photo/Jeff Chiu)

Google CEO Sundar Pichai speaks at the Google I/O conference in Mountain View, Calif., Tuesday, May 8, 2018. (AP Photo/Jeff Chiu) (ASSOCIATED PRESS)

Google has been pouring money into its generative AI efforts after being caught off guard by Microsoft, which began rolling the technology into its products in February after investing in AI company OpenAI. Since then, Google has debuted a host of generative AI products for both its consumer and enterprise businesses, as it seeks to regain its standing as Silicon Valley’s AI leader. Now investors want to see how that rollout is paying off.

The company also released its latest smartphones earlier this month, putting a heavy focus on its AI capabilities including adding foundational AI models to the phones themselves.

Google’s cloud business, meanwhile, is expected to take in $8.6 billion in the quarter, up 25.3% year-over-year. But that growth is slowing. The company posted cloud revenue growth of 37.6% in Q3 2022, 32% in Q4 2022, 28.1% in Q1 2023, and 28% in Q2 2023.

Google is working to slice away at rival Amazon (AMZN) and Microsoft’s (MSFT) shares of the cloud computing market. Google is in third behind its Washington-based competitors.

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In addition to Google’s cloud and AI efforts, Wall Street will be closely watching the company’s advertising business. Analysts expect revenue of $58.9 billion from the segment, up 8.1% year-over-year. That would mark a solid improvement in ad revenue, which has been slowly improving since Google reported negative growth in the business in Q4 2022.

Google, and advertising industry rival Meta (META), are seen as bellwethers for the industry, so any negative performance could have a dramatic impact on shares of other digital ad firms.

Google, however, is facing a slew of regulatory problems. Not only is it battling the DOJ over its search and ad businesses, the European Commission is also working to break up the company’s ad segment. Then there’s Japan’s antitrust watchdog, which is investigating whether Google asked smartphone makers to favor search products over competing services, according to Bloomberg.

Daniel Howley is the tech editor at Yahoo Finance. He’s been covering the tech industry since 2011. You can follow him on Twitter @DanielHowley.

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