TLDR:
- Alphabet reports Q1 earnings Thursday with analysts expecting EPS of $2.01 (up 6%) on $89 billion revenue (up 11%)
- Google stock is down 17.9% year-to-date amid investor concerns
- Company faces antitrust challenges after losing two DOJ lawsuits
- Google is spending heavily on AI with $75 billion planned for 2025 capex
- Potential trade war impacts and reduced ad spending from Chinese companies are new concerns
Alphabet, the parent company of Google, will report its first-quarter earnings Thursday afternoon against a backdrop of mounting challenges. The company’s stock has dropped nearly 18% this year as investors weigh multiple threats to its business model.
Wall Street expects Alphabet to report earnings per share of $2.01, representing a 6% increase from last year. Revenue is projected to reach $89 billion, up 11% year-over-year.
But the numbers for the past quarter may take a backseat to forward-looking concerns. Investors are anxious about several issues that could impact Google’s future performance.
Google is battling on multiple fronts. The tech giant recently lost two antitrust cases brought by the Department of Justice. One case is already in the penalty phase.
The government is seeking severe remedies. These could include forcing Google to share its search and ad indexes with competitors. Some have even suggested breaking up the company.
AI Investments Raising Eyebrows
Google’s artificial intelligence strategy is another hot topic. The company plans to spend $75 billion on capital expenditures in 2025. This represents a 43% increase from 2024, which was already up 63% from the previous year.
These massive investments are part of Google’s effort to keep pace in the AI race. The company faces tough competition from Microsoft, Amazon, and Meta Platforms.
Investors will be looking for signs that these investments are paying off. They’ll also want to know if economic uncertainty might cause Google to adjust its spending plans.
The rise of AI-powered search engines adds another layer of concern. New offerings from Perplexity, OpenAI, and Anthropic present fresh challenges to Google’s search dominance.
This threat comes at an awkward time. Courts have just labeled Google a monopoly in search, even as its grip on the market faces technological disruption.
Trade War Worries Emerge
A new worry has emerged in recent months: potential trade war impacts. While analysts don’t expect first-quarter results to show any effects from recent tariffs, future quarters could be different.
Barclays analyst Ross Sandler noted, “We have seen some transaction velocity in e-commerce drop off of late, and given the macro noise, would expect digital ads to weaken in 2Q.”
Of particular interest will be advertising revenue from Chinese companies like Temu and Shein. These e-commerce players sell to U.S. customers and represent a growing revenue stream for Google.
Google’s Chief Financial Officer Anat Ashkenazi will likely face questions about these concerns. Unlike some companies, Google doesn’t provide specific guidance on future revenue or earnings.
However, Ashkenazi typically shares the company’s views on various factors affecting performance. Her commentary on trade tensions and economic uncertainty will be closely watched.
Cloud Growth Under Scrutiny
Google Cloud Platform (GCP) remains a bright spot for the company. Analysts expect cloud revenue to reach $12.3 billion in Q1, up substantially from $9.5 billion a year ago.
However, Google is facing capacity constraints for its AI services. The company is spending billions to build out data center capacity, but until that work is complete, it may be unable to fully capitalize on demand.
There are also concerns about potential government spending cuts affecting GCP. Mizuho analyst James Lee reported that some Google cloud customers with government exposure have reduced spending compared to their 2025 budgets.
The company’s core advertising business is still its largest revenue driver. Ad revenue is expected to reach $66.4 billion in Q1, with YouTube ads contributing $8.9 billion.
But agencies are starting to reevaluate their search strategies. Some users are turning to generative AI agents and social media platforms to find information online, potentially threatening Google’s search advertising dominance.
European regulatory pressure adds to Google’s challenges. Recent fines imposed on Apple and Meta suggest strict enforcement of the Digital Markets Act and Digital Services Act, both likely to affect Alphabet.
Until recently, Alphabet presented a straightforward growth story: increasing ad revenue supplemented by a booming cloud business. That narrative has grown more complex, leaving investors with new questions and worries.
The first-quarter earnings report will provide some answers. But many of these challenges will play out over quarters and years to come.
Alphabet shares closed at $157.72 on Wednesday, up 2.48% for the day but down 17.9% year-to-date.
