Alphabet (GOOGL), the parent company of Google, is scheduled to report first quarter 2024 results after the market close on Thursday, April 25, with a conference call scheduled for 4:30 pm Eastern Time. What to watch for:
GEMINI ERA: On January 30, along with Alphabet's Q4 report, Sundar Pichai, CEO of Alphabet and Google, said: "We are pleased with the ongoing strength in Search and the growing contribution from YouTube and Cloud. Each of these is already benefiting from our AI investments and innovation. As we enter the Gemini era, the best is yet to come."
On February 8, Google said in a blog post it was changing the name of its AI chatbot to Gemini from Bard to reflect its most advanced AI model of that name. Sundar Pichai stated: "For years, we've been investing deeply in AI as the single best way to improve Search and all of our products. We're excited by the progress, for example with our Search Generative Experience, or SGE, which you can try in Google Labs. AI is also now central to two businesses that have grown rapidly in recent years: our Cloud and Workspace services and our popular subscription service Google One, which is just about to cross 100 million subscribers."
Days later, Pichai announced on X, the platform formerly known as Twitter, that the company had crossed 100M Google One subscribers. "Looking forward to building on that momentum with our new AI Premium Plan offering AI features like Gemini Advanced, plus Gemini in Gmail, Docs + more coming soon," Pichai said.
In early March, JPMorgan noted that Alphabet shares had underperformed year-to-date as investor frustration had "boiled over around the recent Gemini issues." The firm believes there is also a "manifestation of uncertainty" around Google's growth and positioning of search in a generative artificial intelligence world going forward, calls for bigger capital returns including a dividend, and tough comparisons to Meta (META), "which seems to be doing everything right." However, JPMorgan thinks Google will be able to get Gemini back on track and begin to close the generative AI gap with Microsoft (MSFT) and OpenAI. The firm, which also believes the company will see further gains in year two of re-engineering the cost structure, as well as elevated capital returns, possibly including a dividend, maintains an Overweight rating on Alphabet shares.
On March 18, Mark Gurman of Bloomberg reported, citing people familiar with the matter, that Apple (AAPL) and Google were in active negotiations to let Apple license Google's artificial intelligence engine Gemini into its iPhone. Apple has also recently held discussions with OpenAI and has considering using its model, sources told the publication.
After Bloomberg reported that Apple and Google were in deep discussions for the latter's Gemini to power Generative AI features coming to the iPhone with iOS 18, Wedbush analyst Scott Devitt noted that the report said a deal was yet to be finalized, though the firm views Google as "a natural choice" for Apple given the two companies' existing agreement that makes Google the default search engine on Apple's Safari web browser. The firm, which calls the potential iPhone deal "a validation moment for Google's generative AI positioning," kept an Outperform rating on shares of the Google parent.
Following Bloomberg's report, Evercore ISI analysts led by Amit Daryanani and Mark Mahaney suggested such an agreement could be structured similar to the current deal where Google pays a portion of search revenue to Apple in exchange for being the default search option on Safari. At least in the near-term, the firm would not expect material dollars to be flowing in either direction, but argues that such a deal could be "a win/win that gets Gemini more scale while Apple gets AI features without the AI capex." The firm, which continues to think the key driver for AI upside at Apple will be on-device LLMs driving a new iPhone super cycle, keeps an Outperform rating on Google parent Alphabet.
In its own note, Bernstein said the firm was not surprised that Apple might be looking to potentially partner with Google on AI capabilities. Going it alone - or with another partner - would risk a highly profitable and proven revenue stream with Google today, the firm adds. Bernstein also believes a deal also makes sense for Google as it solidifies its relationship with Apple plus provides validation for Gemini, both of which have been recent question marks for Google investors. Apple could potentially partner with more than one AI player, providing access to different LLMs for different functionalities. That said, the firm does not believe that an AI partnership with Gemini or anyone else is essential for Apple to do right now.
More recently, Wedbush's Devitt said the firm came away from Google's annual Cloud Next event encouraged by the company's progress, both in developing its AI capabilities and commercializing early enterprise solutions with new custom chips announced -- Axion -- and a long list of generative AI services and features within Google Cloud that should support growth over a multiyear period. Google's most advanced model, Gemini 1.5 Pro offers significantly larger context windows versus leading competitors, and the firm is encouraged to see Gemini 1.5 Pro powering enterprise tools like Gemini Code Assist, as well as broader use cases across the Gemini family of models that should drive direct monetization.
In its own note on Google Cloud Next, Citi said it believed the event highlighted Alphabet's transition from experimental generative artificial intelligence features to fully established Gemini-enabled cloud offerings. The firm was impressed to hear that 60% of funded generative AI startups and nearly 90% of generative AI unicorns are Google Cloud customers and to date, 1M developers have built with Google's generative AI tools. Citi believes Google's AI product cycle is accelerating across both its core search and cloud businesses. It keeps a Buy rating on the shares.
Last week, Sundar Pichai announced in a blog post a number of structural changes to improve velocity and execution across the company. Pichai said in part: "We're coming off an amazing Cloud Next — congrats again to all involved. It was nice to see the recognition of our leading AI tools and infrastructure, and all the ways our customers are using them. Excited to show more progress during our earnings call next Thursday. Today, I want to share some changes we're making across the company to simplify decisions and help us work better and faster... Last year we created Google DeepMind, bringing together the Google Brain team, DeepMind, and other researchers specifically focused on creating increasingly capable and general AI systems... To accelerate this progress, we're going to consolidate the teams that focus on building models across Research and Google DeepMind. All of this work will now sit in Google DeepMind and scale our capacity to deliver capable AI for our users, partners and customers. This will simplify development by concentrating compute-intensive model building in one place and establishing single access points for PAs looking to take these models and build generative AI applications."
AI UPTAKE: In February, Tom Dotan of The Wall Street Journal said that Microsoft's (MSFT) new AI had been used by testers for over six months and the reviews were in, with many saying it did not live up to the price. Copilot, Microsoft's AI assistant, is an upgrade that plugs into Word, Outlook, and Teams, using its technology to summarize emails, generate text, and create documents. So far, the software has many shortcomings, including Excel, PowerPoint, and its tendency to make mistakes, giving pause to many on whether $30 a head is worth the price, the report stated.
More recently, The Information's Aaron Holmes reported that as many businesses remain cautious about spending on conversational artificial intelligence, AI providers such as Microsoft, OpenAI and Google are racing to make the technology more of a must-have by introducing new features that can handle complex tasks with little guidance from the customer. Microsoft, for instance, is making software to automate multiple actions such as creating, sending and tracking a client invoice based on their order history or rewriting an application's code in a different language and verifying that it works as intended, according to employees. The new software, which OpenAI technology will power, will improve upon Microsoft's current suite of Copilots, the author says.
COOKIES WON'T CRUMBLE YET: Earlier this week, Alphabet's Google stated in a blog post that, "We are providing an update on the plan for third-party cookie deprecation on Chrome. We recognize that there are ongoing challenges related to reconciling divergent feedback from the industry, regulators and developers, and will continue to engage closely with the entire ecosystem. It's also critical that the CMA has sufficient time to review all evidence including results from industry tests, which the CMA has asked market participants to provide by the end of June. Given both of these significant considerations, we will not complete third-party cookie deprecation during the second half of Q4. We remain committed to engaging closely with the CMA and ICO and we hope to conclude that process this year. Assuming we can reach an agreement, we envision proceeding with third-party cookie deprecation starting early next year."
Macquarie noted that Google announced that it is delaying its deprecation of the third party Chrome cookie due to pressure from the U.K.'s CMA and "divergent feedback from the industry, regulators and developers." The news is hardly a surprise, the firm says, noting that it still expects cookie elimination to happen. While the delay in one way pushes off the inevitable, it does mean any imminent negative market impacts such as temporary shocks to the system are now pushed out, Macquarie argues. The firm notes that The Trade Desk (TTD) has expressed some concerns over the effect this deprecation would cause, so perhaps the delay provides a temporary sentiment boost, while Criteo (CRTO), which was perhaps the most front-foot on getting ready for a cookie-less future, "would like to get this over with." LiveRamp (RAMP) has seen good growth in its subscription business recently, perhaps in anticipation of cookies disappearing, as it has established its identity solutions as an industry standard alternative to cookies, added the firm.
EXPECTATIONS: Current consensus EPS and revenue forecasts for Alphabet's March-end quarter stand at $1.51 and $78.59B, respectively, according to data provided by Refinitiv. That $1.51 EPS estimate for the first quarter is up 2c over the past 90 days ago, from $1.49, according to Refinitiv.
Among analysts tracked by Bloomberg that have updated their views on Alphabet within the last twelve months, 55 have Buy or equivalent ratings, 10 have Hold or equivalent ratings and the average twelve month price target of 50 of those analysts is $169.35.
SENTIMENT: Check out recent Media Buzz Sentiment on Alphabet as measured by TipRanks.
Alphabet
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Alphabet
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Apple
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